Congress passed and President Bush approved H.R. 3648, the “Mortgage Forgiveness Debt Relief Act of 2007.” The legislation is effective for discharges of indebtedness on or after January 1, 2007 and before January 1, 2010. The Federal Bailout Legislation H.R. 1424, passed on October 3, 2008, extended this relief through December 31, 2012.
Under the new law, a discharge of “qualified principal residence indebtedness” is excluded from taxable income. “Qualified principal residence indebtedness” is acquisition indebtedness secured by the principal residence of a taxpayer as defined for the deduction of residential mortgage interest, but the limit is $2,000,000 for the exclusion ($1,000,000 for the mortgage interest deduction) and $1,000,000 for married persons filing a separate return ($500,000 for the mortgage interest deduction). Also, the exclusion only applies to a mortgage secured by the principal residence of the taxpayer.
For example, for a recourse debt short sale:
|Pay off using net sale proceeds||450,000|
|Cancellation of debt (ordinary income)||$ 50,000|
If the cancellation of debt was for “qualified principal residence indebtedness,” it will be excluded from taxable income and be subtracted from the tax basis of the residence.
The article above is for research and information purposes only. I am not a tax expert – but can certainly refer you to a tax professional to tell you more about this tax relief and/or other tax ramifications due to short selling your primary residence. Feel free to call me at (703) 774-9572 or email me.
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Jennifer Young is the CEO and Team Leader of Jennifer Young Homes with Keller Williams Realty. Jennifer is a highly experienced real estate agent and industry leader specializing in the Virginia, Maryland and Washington DC market. Jennifer sells Regular Sales, Short Sales, Foreclosures, Rural Residential & Land. Her team has helped hundreds of troubled homeowners for FREE! Call Jennifer today for a free consultation at (703) 651-5655 or email her.
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Jennifer Young was a great agent, especially because of the amazing team working behind the scenes. Her and her staff knew so much about short sales.
Jennifer Young sold our home for us in Fairfax, VA and did an incredible job. It was priced right and went under contract in less than 10 days.
We worked with Jennifer Young and her team when short selling our property. They were on-the-ball and completely on top of my case at all times. .