FORECLOSURE/SHORT SALE TAX HELP

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In 2007. the Mortgage Forgiveness Debt Relief Act of 2007 was passed, helping many underwater homeowners avoid taxes on the amount of debt that their lender forgives. Even though the homeowner doesn’t see any of the money from the short sale, the lender’s loss is considered the homeowner’s gain and the lender issues a 1099 reporting that amount as income.

That “income” would ordinarily be taxable, but the 2007 Act wiped out tax liability for many homeowners who short sale their homes between 2007 and 2012.

It is possible that Congress could move to extend the tax protection. However, those who are considering short sales may wish to be cautious and begin negotiating the process now. Listing the home, finding a buyer and negotiating with the short sale can take months.

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