So after our site was down for nearly a month after being hacked and our email list was lost, we’ve been rebuilding our site slowly and painfully.
Not that we were some big threat to national security. We weren’t making state secrets public like wiki leaks.
All we were preparing to discuss is the income tax liability associated with selling your house in a lender approved short sale.
But in the aftermath of their hacker 101 session on our site, we lost some valuable information that’s been almost difficult to reconstruct or replace.
So, by the forces of the Internet, we’re forced to start all over and resume our efforts with our Foreclosure Short Sale E-Book!
While we resume our efforts
I got an email from one of our readers who inquired about what happens to a homeowner who sells their house in a lender approved foreclosure short sale.
A friend of hers in another state received a 1099-C from their lender at the end of the year after the short sale of her home in Florida.
The IRS form filed by the lender indicated she had nearly $90,000 in unreported income as a result of the approved short sale.
It unnerved this poor woman so much that she filed an extension on her tax return in hopes of finding a way to pay the income tax owed to the IRS.
Why should she pay income tax after selling your house in a short sale?
The fact is, she doesn’t owe any taxes on the amount alleged as income by the lender.
Lenders are required to treat the balance remaining from any mortgage owed after a lender approved short sale has closed as income to the benefit of the borrower.
While you normally receive a 1099 from your bank notifying you of the amount their reporting to the IRS they paid to you in the form of interest, the same would apply on any unpaid loan balances.
If it were normal times, that unpaid balance would be attributed to a borrower as income, in which the IRS would require her to pay any taxes owed applicable to her income bracket, plus any interest or penalties she would be fined for late payment.
But these aren’t normal times
And as a result, Congress passed the Mortgage Forgiveness Debt Relief Act of 2007 for any owner occupant who sells their home for less than what they owe will be forgiven any applicable income tax owed.
As beneficial as the act is in providing tax relief to property owners, there’s a couple of caveats you have to be aware of:
- The law is applicable to a homeowner’s principal residence (vacation homes and second homes don’t count)
- A homeowner can have debt forgiveness up to $2 million without owing any income taxes after a short sale
- The federal legislation expires December 31st 2012
Should the real estate led recession continue to weigh down the economic recovery, there’s a good chance the legislation could be extended.
However, the probability of that occurring might be 50/50 because of the enormous national debt owed by the federal government. The political will may not be there to continue bailing out the general public from the mortgage meltdown.
Now, for the home buyer in you…
The deadline for the legislation’s expiration puts pressure on homeowners to make a decision about remaining in a home that is worth less than what they owe.
Soon, borrowers who find themselves underwater that are finding it difficult to make monthly mortgage payments may take the federal government up on their offer of debt forgiveness.
And as rare as an eclipse sighting, we may actually have a win/win that benefits both seller and buyer in light of the current state of the national economy.
So here’s my last statement on the foreclosure short sale e-book
We’ll be distributing it to the email addresses we were able to salvage from our old site and at the end of June 2011, after we’ve finished fixing all the damage done by the hacker.
At that point, we’ll be inviting our readers who received the book to a special offer that we think will be the difference in buying right the first time.
We thank you for hanging in there with us while we get our affairs in order so we can resume our mission to publish the online real estate guide at My Brooklyn Report.
See you guys soon 
.
