In 2007, an instrument was designed which would allow taxpaying homeowners the ability to exclude having to show certain discharged debt relating to their principal residence as income when filing their tax returns. This instrument is named The Mortgage Debt Relief Act of 2007 and states that any debt that has been reduced in connection with a mortgage restructuring, a foreclosure, or a short sale, qualifies for the relief under this act.
Through this Mortgage Debt Relief Act, a homeowner may have as much as $2 million of debt forgiven ($1 million if married filing separately) depending on the homeowner’s unique set of circumstances. What Phoenix homeowners may not realize is that the Act only applies to debt which is forgiven within the calendar years of 2007, 2008, 2009, 2010, 2011 and 2012.
If you own Phoenix real estate as a primary residence and you have been considering the short sale of your home, you need to make a determination as soon as possible because if you decide to short sale your property and you want to reduce your associated tax liability, you need to settle the short sale transaction and associated agreement for debt forgiveness before to the end of 2012.
Due to this narrowing window of opportunity, there will surely be a big push in the real estate industry to get homeowners considering the short sale of their house to move quickly; we would not be surprised to see a backup of transaction processing within the distressed homeowner departments of many large banks due to this timeline crunch.
If you have decided to short sale your Phoenix home, make sure you first consult a professional tax specialist. Then, contact our team of Phoenix short sale specialist real estate agents for your home valuation and listing. We handle all aspects related to the listing and COE of these transactions, from the initial property listing through the negotiation of all attached debt and final closing of escrow.