One of my recent columns, “Short Sale Tax Relief,” was about an IRS guidance letter detailing how the IRS will not be treating forgiven debt associated with a short sale as income. Until this guidance was issued our short sale clients have been depending on the 2007 Mortgage Relief Act which provides and exemption for taxes associated with the amount of forgiven mortgage debt.
This act and exemption expires at the end of the year which was going to make short sales much less effective.
As I mentioned in my previous column, “The background for the IRS guidance includes, California law which generally protects a borrower from owing a deficiency after a short sale of a residential property, including both first and junior trust deeds. Exceptions include fraud, waste, cross-collateralized loan, and a borrower that is a corporation, LLC, or limited partnership.”
“This is very good news for homeowners who need or want to sell but still owe more on their homes than they are currently worth.”
I just learned, homeowners who had to report cancellation of debt on their 2011 or 2012 tax returns may qualify to have their returns amended.
