Oakland Real Estate: Thinking of a Short Sale?
Posted by Hamid Grinage on Thursday, January 17th, 2013 at 2:46pm.One of the more significant risks of short selling your real estate is that it could have potential tax consequences. Fortunately soon after the market began to go down in the mid 2000's and it was evident that short sales would be around for some time, legislators passed legislation that allowed short sellers of real estate to have the taxes that would normally be assessed on the debt that they were being forgiven to be waived.
Think about it this way: Let's say you want to short sell your house in Oakland and you paid $600k for it and it is now worth $400k. The balance on your mortgage is still $550k since you've only lived in the house a few years. When you sell the house for $400k, the difference in the amount owed and the amount of the sale is approx $150k (minus costs of the sale). Typically the IRS will view this amount that is forgiven by the lender in the short sale as taxable income, subject to capital gains and income tax. You can see that for a homeowner who is already likely not in the best financial condition to have to shell out thousands of dollars for money that they did not actually earn can be truly painful.
So in 2007 a law was passed that waived the taxes on the forgiven debt..which was a great thing. The only problem was that they wrote the legislation to expire in 2012. So at the end of 2012 there was a great effort to get it extended..and it was extended but only until the end of 2013. I'm hopeful that at the end of this year they will realize that we likely have at least a couple more years of short sales being a significant percentage of the real estate inventory for sale.
If you are a homeowner who is considering a short sale, you should keep in mind that there is no guarantee that the law will be extended passed 2013. This is very pertinent info because if the law isn't extended it will have serious implications for anyone who short sells their home in Oakland or anywhere else for that matter. If you need to speak with someone about your situation feel free to contact me at the number at the top right of the screen and I would be happy to discuss it with you.
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