User:AniwetaHaverill2743

Many people go blind when they are facing foreclosure. They would search for any solution to avoid it no matter what the consequences are. The most obvious option that causes less damage on the property owner is probably short selling. If you want to understand how these implications will affect you, you first need to know what a short sale is.

It basically happens when you have a mortgage balance more than what your house actually worth. If you choose to pay it anyway, you will be paying a lot of additional money while you could just get rid of it. If you are wondering like everyone else of why the lender would approve this sale and forgive your remaining debt, then it's simply because no one likes the penalties foreclosure produces even if it's a bank. However, if you think that as soon as your lender approves your short sale, you are done, then you need to think again.

The good think about these types of sales is that they don't affect your credit score a lot. The bad thing about them is that the IRS considers the forgiven debt as income. If it is so, then it must be a subject of taxes. As soon as you complete the sale, you will expect to receive a 1099-C form on the lender's losses (amount forgiven).

How can I avoid it?

Lucky for you, in 2007, President George Bush passed the "Mortgage Forgiveness Debt Relief Act." This act is valid until the last day of the 2012 year (31 December). If you are considering short selling your property without having to pay additional taxes, then you may want to do it before that day. After that day, no one knows if the act will be extended or even changed. The only limitation to this act is if you have a debt of more than $2 million.

While I have seen many real estate agents discuss other ways to avoid its tax implication, I haven't been able to confirm any of them. Some of them claim that you can make an arrangement with your lender to reclassify your forgiven debt so it won't be taxable, but I haven't seen such a lender yet. If you want to stay out of trouble, you need to check with a professional agent, he or she can tell you whether it's good or not to short sell your property. 任意売却