In previous blogs, posts and articles, I have tried very hard using this amazing resource known as the web to reach out to people who are caught in the net full of homeowners whose mortgage balances exceed the value of their home. There are hundreds of thousands of such people in Florida alone, many of which are located in my area – Sarasota and Bradenton, Florida.
Yes, I am being preachy and repetitive, but I am not sure that everyone who can benefit from my message has heard it and/or quite understands it. So at the expense of sounding repetitive, here is the point I hope all who can benefit will understand and act upon. Ordinarilly, cancelation of indebtedness is treated by the good ‘ole IRS as ordinary income. That is, if your house is valued at $150k on the date of its short sale, deed-in-lieu of foreclosure, or foreclosure and the mortgage balance is $250k, then the IRS treats the difference of $100k as canceled indebtedness which is deemed to be income to the homeower/borrower. Yes, you got it; income taxes are due and payable by the homeowner/borrower on the $100k! Sounds crazy right?! Well, it’s not; it is real.
For example, lets say Mr. Screwed lives with his family on Why Didn’t I Listen Lane in a home having a value of $150,000.0o and a mortgage balance of $250,000.00. Mr. Screwed wakes up on June 22, 2012, and realizes that that he can no longer afford the mortgage payments on his home. Trying to figure out what he needs to do to get out from under his overburdensome mortgage payments, he starts talking to his friends, his neighbors, his post man and his relatives. He does so for 6 months. It is now December 22, 2012. He starts the short sale process with a realtor friend of a friend (come on, we all have them!). Guess what? Mr. Screwed is screwed. There is no way he can get his short sale closed before the end of the year. Short sales typically take 3 to 6 months to complete. Mr. Screwed is now obligated to pay Uncle Sam income taxes on an ADDITIONAL $100,000.00 of income for the year 2013.
There is currently an EXEMPTION from the taxation on the cancelation of indebtedness amount described above for primary residence owners, however, IT EXPIRES AT THE END OF THIS YEAR – December 31, 2012.
DON”T LET THIS HAPPEN TO YOU! Call us today so schedule an appointment for a free consultation – 941-795-6565.
LEGAL – THIS POST IS NOT INTENDED TO BE NOR SHALL IT BE DEEMED TAX ADVICE – I am a real estate and business lawyer that handles short sales, loss mitigation, asset protection, foreclosure defense and other work-out solutions as well as many other matters related to real estate, business and other areas of the law. I AM NOT A TAX LAWYER, CPA, or ACCOUNTANT. As such, you should always consult with a CPA when seeking advice on tax matters.
Michael D. Wyckoff, Attorney, Sarasota, Florida
Wyckoff Law Firm, P.A.
941-795-6565
mike@wyckofflawfirm.com
http://www.wyckofflawfirm.com
If you are seeking a real estate lawyer to help you through the legal process and to help guide you to find your way back to a less stressful, healthier and happier life again, please call our offices at 941-795-6565 to schedule an appointment with a lawyer. Wyckoff Law Firm, P.A. Your Sarasota short sale lawyer, Bradenton short sale lawyer, offering foreclosure defense, foreclosure help, short sale help, helping you stop foreclosure, avoid foreclosure and much more.
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