In 2013 short sales or foreclosures means paying income taxes
With the start of the New Year, inevitably people start thinking about paying taxes and the IRS.
Here is something to ponder if you are one of the millions of American Homeowners who is behind in their mortgage payments. Starting in 2013, whether a homeowner gets foreclosed on or completes a short sale, they will be required to pay both Federal and State Income Taxes. Yes, even after they lose their home, they will be left with a tax bill for the value of the debt which was forgiven or charged off. And as calculated in the article below, this could mean possibly tens of thousands of dollars for the homeowner.
According to the Mortgage Debt Relief Act of 2007, up until December 31, 2012, the IRS and Franchise Tax Board (for California Homeowners) will “generally allow taxpayers to exclude income from the discharge of debt on their principal residence.” The Franchise Tax Board has agreed to mirror the IRS on this matter. And given the status of the Federal Debt Ceiling and current political climate, I would bet against the law being extended.
http://www.sacbee.com/2012/01/09/4172841/you-may-owe-federal-income-taxes.html
You May Owe Federal Income Taxes in 2013 if You Have a Short Sale, Foreclosure
Besides the expiration of the Income Tax exemption, there is another financial incentive which will expire at the end of calendar year 2012. The HAFA (Home Affordable Foreclosure Alternative) Program, which may assist qualified Homeowners receive moving expenses and additional funds to pay off a second mortgage will expire on the same date.
Given that the foreclosure and short sale procedures are prone to extended time to completion, homeowners in distress contemplating short sales must do some serious thinking this year.
