short sales tax forgivenessThe Mortgage Forgiveness Debt Relief Act of 2007 applies to debt forgiven in calendar years 2007 through 2012. So, what that means is that any person participating in or anticipating a short sale and whose property qualifies under the Mortgage Forgiveness Debt Relief Act of 2007 will want to get that property sold and closed before the end of 2012.

This act offered relief to homeowners who would formerly owe taxes on forgiven mortgage debt after facing foreclosure. The act extends such relief for three years, applying to debts discharged in calendar year 2007 through 2009. (With the Emergency Economic Stabilization Act of 2008, this tax relief was extended another three years, covering debts discharged through calendar year 2012.)

When this Act came to be, it provided tax relief to many folks who participate in short sales, which meant the amount of the debt that is forgiven by the bank would not be taxable.* At the end of 2012 it is possible all debt that is forgiven will be taxable.

As it can take anywhere from 30 days to 4 months to get a short sale approved,  it would be important for any seller considering a short sale, to list the property as early in the year as possible.

Many banks, such as Citibank, Chase and Bank of America,  are now offering incentives ranging from $2500 to $20,000 to homeowners who opt to do a short sale versus letting their homes go to foreclosure.  Check with your lender to see if they have any program in place or give us a call and we can check for you.

*Please consult with an accountant or with the IRS in order to learn more about whether the Mortgage Forgiveness Debt Relief Act of 2007applies to your specific situation.

About Linda Urbick Linda

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Filed under: Short Sales & Foreclosures

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