Short Sale Tax Implications
Compared to your lenders, tax laws are not too forgiving so knowing the short sale tax is necessary when selling Short Sale homes for sale in Denver for less than what is owed on it. The challenging economic situation has added a lot of homes in the foreclosure list, and has made a lot of people jobless. On the other hand, mortgage requirements are getting stricter which makes refinancing quite hard. Given all this, the homeowner has no choice but to ask permission to the lender to request for a short sale in order to avoid foreclosure.
In the United States, an Act of Congress known as the Mortgage Forgiveness Debt Relief Act has provided some relief for those homeowners who have undertaken a short sale on their primary residence which allows elimination of the tax for debt forgiveness of up to $2 million US Dollars. However, short sale taxes are imposed because the forgiven debt is considered income for the borrower. If you are not aware and feel pressured to pay the short sale taxes then be informed that the lender has a tax form for the borrower to list the details of the debt forgiveness when a short sale has been carried out.
What happens is that the lender forgives the borrower’s debt which is $200,000 in order to avoid foreclosure and in turn, the lender is taxed with an applicable rate on the said amount at up to 9.3 percent rate, which is almost $19,000 tax. Not everyone will have this amount so the homeowner can make arrangements for a reduced payment or settle with the state as to how they could pay down the amount.
A short sale can significantly lower down a home owner’s FICO credit score by as much as 200 points, but this is better than foreclosure because it reduces your FICO score, and prevents you from getting another mortgage. In this case, every homeowner should be informed of short sale homes tax information before they start the short sale process.
In the United States, an Act of Congress known as the Mortgage Forgiveness Debt Relief Act has provided some relief for those homeowners who have undertaken a short sale on their primary residence which allows elimination of the tax for debt forgiveness of up to $2 million US Dollars. However, short sale taxes are imposed because the forgiven debt is considered income for the borrower. If you are not aware and feel pressured to pay the short sale taxes then be informed that the lender has a tax form for the borrower to list the details of the debt forgiveness when a short sale has been carried out.
What happens is that the lender forgives the borrower’s debt which is $200,000 in order to avoid foreclosure and in turn, the lender is taxed with an applicable rate on the said amount at up to 9.3 percent rate, which is almost $19,000 tax. Not everyone will have this amount so the homeowner can make arrangements for a reduced payment or settle with the state as to how they could pay down the amount.
A short sale can significantly lower down a home owner’s FICO credit score by as much as 200 points, but this is better than foreclosure because it reduces your FICO score, and prevents you from getting another mortgage. In this case, every homeowner should be informed of short sale homes tax information before they start the short sale process.
Filed under News by on Feb 24th, 2012. 