The Mortgage Debt Relief Act of 2007, which was specifically designed to help taxpaying homeowners exclude having to show discharged debt related to their principal residences as income, will not last forever. Generally, debt that has been forgiven through mortgage restructuring, foreclosure or a short sale, qualifies for the relief under this act. Additionally, a homeowner may have as much as $2 million of debt forgiven ($1 million if married filing separately) depending on each homeowner’s circumstances.
What Phoenix and Scottsdale homeowners may not understand is that the Act only addresses debt forgiven within the calendar years of 2007 through 2012. Even though the Mortgage Debt Relief Act has been extended in recent years, there is no guarantee that it will be extended again.
If you have been considering the short sale of your Phoenix home, you should make that decision as soon as possible because if you short sale your property and you want to reduce your tax liability associated with that sale of your property, you need to settle the transaction and the debt forgiveness agreement prior to the end of 2012.
Due to the short amount of time left in 2012, there will undoubtedly be a strong push in the real estate industry for homeowners executing the short sale of their homes and as a direct result, there may be a backup within the distressed homeowner departments of banks due to this final crunch.
If you plan on short selling your Phoenix home, make sure you consult a tax professional. As soon as you have done that, contact our team of Phoenix real estate short sale specialists for your home valuation and home 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.
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