Short Sales - 10 Tips for Debt Forgiveness
If you have recently fallen behind on your mortgage payments, don't miss your opportunity to get help from a short sale and foreclosure specialist. Your local real estate experts at Ask Gina & Company are here to guide you through the entire short sale process.
If your mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income.
Below are 10 facts from the IRS about mortgage debt forgiveness (taken from the Mortgage Forgiveness Debt Relief Act of 2007):
1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring as well as mortgage debt forgiven in a short sale or foreclosure.
4. To qualify, the debt must have been used to buy, build, or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental properties, business properties, credit cards, or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more detail about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of a short sale or foreclosed property.
10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
A short sale is an emotional and complicated process, but you DO have options. Let our office of short sale experts do the leg work for you. We will guide you from listing, negotiating with the bank, and everything throughout to closing table.
Take advantage of the debt forgiveness for short sales before time is up. Call 703-574-3478 to understand your short sale options.
