Taxes may be due on Your Foreclosure or Short Sale!
One of my good realtor (Keith) clients pointed out to me that the Mortgage Debt Relief Act of 2007 had not been renewed for 2014. A provision in the act protected homeowners from having to pay taxes on the Cancellation of Debt (1099-C) for their primary residence if their home was sold via a short sale or foreclosure.
If a homeowner can’t prove insolvency (they owe more than they own), or they can’t qualify for a Title 11 Bankruptcy prior to the home being sold, they’ll have to pay taxes on the cancellation of debt. This could result in thousands of dollars in taxes coming due.
The Mortgage Relief Act could get extended by Congress before the year is out, but nothing is guaranteed. Be sure you and your clients fully understand the ramifications of foreclosure or a short sale by talking with an accountant or tax planner.
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