A short sale can occur when a house is upside down, meaning that the home is worth less than what is still owed to the lender. The lender has to accept the lower price as a full payoff, so the homeowner’s debt has been ‘forgiven’ by the lender.
Since Congress passed the 2007 Mortgage Debt Relief Act, homeowners have not been responsible for any taxes on the house being sold. However, the amount of money that the lender ‘forgives’ is actually taxable. The IRS accepts that loss from the lender as a gain for the owner.
Unfortunately, that debt protection and benefit to the homeowner may not be in effect this upcoming new year. Congress must act to extend the act or homeowners completing short sales in 2014 will be accountable for the taxes. If you have any questions about short sales, please contact Dallas Short Sale Specialists (Oyezz Real Estate) at 972-342-0011