Tim Murphy is a great friend of Red Phoenix Consulting and we are always pumped to have him as a guest. He is highly regarded and respected in the industry for his knowledge and professionalism. His contact information is listed below, for all credit questions find me at john@redphoenixco.com
Understanding Apple Valley Short Sales and Possible Tax Ramifications
February 17th, 2011
by The Metropolitan Home Team
The Possible Tax Consequences For An Apple Valley MN Short Sale?
The IRS or Tax Collector has instilled fear in all taxpayers even the ones who pay more than they owe. Today I will be giving you my opinion on possible tax consequences if you choose to do an Apple Valley MN short sale.
When someone hears IRS, it instills fear in most taxpayers. Again, here is my opinion on short sale debt forgiveness. Please note that all of the info stated below is my personal opinion on this subject. This is not legal or accounting advice. You should talk to a competent legal or accounting professional before making any real estate or Apple Valley MN short sale decisions.
You will have Forgiveness of Debt Tax Liability whether you give your home back in foreclosure or conduct a short sale. FACT! Before I started doing short sales 5 years ago, I thought if the bank foreclosed on your home there was no way you could be taxed on the loss. However, I did think there were tax ramifications if you conducted a short sale. So the question was, why go forward with a short sale if in turn you will pay taxes on the bank’s loss? Soon I found out you will get hit with a tax implication if you give your Apple Valley MN home back in a Foreclosure or conduct an Apple Valley MN Short Sale.
The government views your loss on a short sale or foreclosure as money you received and never paid taxes on. If you lose a home thru foreclosure, it goes back to the bank and the bank then resells the property. However, with an Apple Valley MN foreclosure, the amount of debt being, “forgiven” will be much larger then if you are successful doing an Apple Valley MN short sale. Why? Because, your bank will lose up to 26% more money when doing a foreclosure. Take the case of a homeowner with U.S. Bank who was turned down for a short sale. The real estate agent presented U.S. Bank an offer of $485,000, but they rejected it. The bank thought they could get more money after foreclosing on the Eagan MN home and then re-selling it.
After U.S. Bank foreclosed on the home, the bank was only able to re-sell it for $330,000. This left the homeowner’s with over $155,000 in debt being forgiven. If the bank had taken their original Apple Valley MN short sale offer, they would have only had $35,000 in debt forgiven. That’s a big difference, right?
Now, here’s the good news. The Mortgage Forgiveness Debt Relief Act of 2007 changed everything. Normally, when a lender decides to forgive all or a portion of a borrower’s debt and accept less than the borrower owes; the debt forgiven is considered as income, the bank 1099’s the borrower and they are liable to pay taxes on that money.
But, after the signing of the Mortgage Forgiveness Debt Relief Act, amendments have been made to remove these tax liabilities and allow a borrower and lender to work together to establish a resolution that is beneficial for both parties (in most cases). This protection is limited to primary residences only! Rental properties do not qualify for the Debt Relief Act. I strongly recommend you consult with a tax advisor regarding a foreclosure or short sale on rental property. The amount of forgiven mortgage debt allowed to be excluded from income tax is limited to $2 million per year.
There are benefits to being taxed on the banks loss. It gives you tons of ammo to hold off the bank from collecting a deficiency judgment from you. If your bank files a 1099 for their loss after you do a short sale, they can’t collect money from you after the fact. You can easily get rid of this tax liability by filing a Form 982 on your tax return.
Click here to view the Mortgage Forgiveness Debt Relief Act and Debt Cancellation.
Click here to view the article, Mortgage Workouts, Now Tax-Free for Many Homeowners; Claim Relief on Newly-Revised IRS Form
Thanks for reading this, Tim Murphy.
Tim is a local Apple Valley Mn real estate agent @ Re/Max Results.
Phone: (952) 223-0999.
P.S. Please feel free to call or e-mail me at anytime for a FREE No Cost, No Obligation Consultation. My goal is to help as many people as I can in 2011.
Get the tools you need for a successful loan modification by clicking here.
Discover how other sellers successfully did a short sale and request a free consultation by clicking here.
Thanks for reading this, Tim Murphy.
Tim is a local Apple Valley Mn real estate agent @ Re/Max Results.
Phone: (952) 223-0999.
P.S. Please feel free to call or e-mail me at anytime for a FREE No Cost, No Obligation Consultation. My goal is to help as many people as I can in 2011.
Get the tools you need for a successful loan modification by clicking here.
Discover how other sellers successfully did a short sale and request a free consultation by clicking here.
View my homes for sale at www.HomesMN.info.
Tim Murphy, MN & WI Licensed Realtor
Metropolitan Home Team
RE/MAX RESULTS
Phone: 952.223.0999
E-mail: TimMurphy@MetropolitanHomeTeam.com
Website: ForeclosureHelpMN.info
We specialize in loan modification assistance and short sales in Apple Valley MN. Apple Valley MN Loan Modification Help, Apple Valley MN Loan Mod Help, Apple Valley Minnesota Loan Modifications, Apple Valley MN Loan Mods, Apple Valley MN Loan Mod, Lakeville MN Loan Modification. Lakeville MN Short Sale, Apple Valley MN Short Sale, Apple Valley Minnesota Short Sales, Lakeville Minnesota Short Sale, Eagan MN Short Sales.
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