As you know, I always recommend that you get specific tax advice from your tax preparer (who should be an accountant and preferably a C.P.A.). Many of you are concerned about the potential tax consequences of a deficiency waiver (where the bank “forgives” the loan balance after a “short sale”). Personally, I think the whole idea of the government taxing you on your loss is absurd when the same government is bailing out the big banks because “they are too big to fail.” Many of you have heard me say that “If banks are ‘too big to fail,’ my clients are not ‘too little’ to succeed.”
There seems to be some good news on the forefront. I have predicted for a while that Congress will extend the Mortgage Forgiveness Debt Relief Act through 2013. As of now, the relief from the “income” provided through a short sale in the form of debt forgiveness is scheduled to end on December 31, 2012. However, as you can read in the recent Tampa Bay Times article, the Senate Finance Committee approved a bipartisan bill extending the act through 2013. We are not out of the woods yet as it has to move through the rest of Congress before the Act is extended. However, it does look good at this point. Remember to consult with your tax preparer because even if you end up with a taxable event in 2013 with a short sale, you may have other tax options that can help such as capital gains exemptions. Remember too that this relief is for homeowners that reside in the home as their “primary residence” and investment property can be its own animal.