Short Sale Tax Consequences
Foreclosures are skyrocketing and people are looking for different ways to come out of their mortgages. Often, short sales are used to evade foreclosures. The question remains whether the short sale tax consequences 2015 are a good way to escape foreclosures, is beneficial or not. In various cases, some benefit from it, while for others, it makes the credit FICO score worse than ever, consequently resulting in bankruptcy.
In this short review you can read about the tax implications of the short sale, and decide which will be the best course of action for your needs, or even prepare your financial steps for the 2015 short sale tax consequences.
What Are Real Estate Short Sales?
A short sale takes place when the lender consents to release the lien on property when it has not been paid in full. With a short sale, the lender receives almost all of his money without wasting time and spending money on a foreclosure.
In a short sale, a mortgage lender agrees to be paid less than the owed amount of mortgage contractually, with respect to a real estate sale. The same set of rules for tax is followed as those for the foreclosures. The borrowers should consider the tax amounts that will be due if the debt is cancelled, relying on the type of loan and the situations of the borrower.
Tax Planning For 2015 Short Sales
With recourse loans, the borrower is responsible in person to pay off the balance amount of the loan even if the lender has guarantee. In case, there is a short sale on a recourse loan, the borrower might be forgiven the for the amount of debt, although he or she will still be required to pay off any tax amounts calculated on the canceled debt.
Contrarily, with non-recourse loans, the borrower is not responsible in person to repay the balancing amount of the loan when the lender has the guarantee. These loans can be written either in a loan document or upon the requirements of state law. If a short sale of non-recourse loan occurs, the debt income will not be cancelled because the lender cannot ask the borrower for the repayment of loan. The same applies if the property is sold for a lesser amount than the actual amount owed on the loan.
Loan borrowed from lenders which are forgiven by the lender or are later cancelled, might be added as income for calculation of taxes which depends on the conditions prevalent. This short sale tax consequences mean the due amount of debt at the short sale will turn into reportable income. The lender will send the IRS Form 1099 – C to the borrower when the short sale ends up. There will be no “cancellation of debt” in case of non-recourse loans, insolvency, qualified principal residences and bankruptcy.
According to the IRS.gov, debts cancellations for up to $ 2 million are not required to be considered as a source of income for primary residences. The Debt Relief Act of 2007 is applied to cancelled or forgiven amounts of debts used to purchase, build and develop a primary residence.
Rental Property Short Sale Tax Consequences
The cancelled amount of debt from rental properties, vacation homes and second homes which are settled via short sale are considered a source of income. Some of the borrowers may qualify for prohibiting of cancelled amounts of debts if the borrower is in debt or has gone bankrupt.
You should seek a tax planning advice before you decide if to proceed in a short sale, the short sale tax consequences for 2014 and 2015 are far too dramatic to skip the professional advice.
Where To Start?
Most important is to get professional assistance, you may want to Join and Reveal How To Stop Foreclosure and Debt Collectors Immediately.
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