What Are the Tax Consequences with a Short Sale in Arizona
http://wellsrealtylaw.com/operation-h...
For most people the Mortgage Debt Relief Act will offset any taxes owed, but not in all cases so consult an attorney... Oh wait, we are real estate attorneys!
So, here is more info...
What are the tax issues for your home? It depends. Every short sale is different. Generally, when you owe a debt to another person or entity and the debt is forgiven, the canceled debt may be taxable. In the past, this general rule has applied to debt forgiveness related to a foreclosure or short sale. In 2007, Congress passed the Mortgage Debt Forgiveness Act ("MDFA"). Under the MDFA, a homeowner may exclude up to $2 million of debt forgiveness ($1 million if married filing separately) from the discharge of debt on their principal residence. The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home's value or the taxpayer's financial condition. The MDFA applies to refinance loans if the loans were used to pay off previous loans that would have qualified. The MDFA does not apply to HELOCs. Finally, the MDFA was passed with a sunset provision that automatically cancels the Act on January 1, 2013. In order to qualify, a homeowner must close the sale of their home before that date or they will be taxed on the forgiven debt.
