Orlando Short Sale Expert | Orlando Short Sales

Orlando Short-sale sellers and their agents have plenty to think about, and it is understandable if they are annoyed by the reams of paperwork that may come their way. Nonetheless, it really is important not only to pay attention to what is in the paperwork but also to be sure to retain it for possible future use. This is because of bad consequences that the seller may experience sometime after the sale has taken place.

Bad enough that a Orlando short sale involves the loss of one’s home with no equity to show for it, and a credit negative that may last for years; it also has the potential to produce two very bad after-effects. One is that the lender, or the lender’s assignee, may continue to pursue the beleaguered seller for the remainder of the debt. The other is that the I.R.S. may come knocking on the seller’s door, seeking tax on the amount of debt that was unpaid.

The first possibility is often contained in the paperwork that goes along with the seller’s ok of the short sale. The borrower may be required to sign a promissory note for the difference between the debt owed and the short sale proceeds received by the lender. Or, a lender may require the borrower to sign a paper acknowledging that the lender reserves its right to pursue the borrower for this amount.

The second possibility resides in the fact that, if a debt is forgiven, the borrower may be taxed on the amount he didn’t have to pay back. (see I.R.S. publication 4681). To be sure, there may be short sales where the debt that is unpaid is not taxable. For those exemptions, see a tax accountant.

The point here is that the short-sale seller may suffer one of those unpleasant consequences; but he ought not to suffer both.

The point is raised because here is what can happen: In allowing the short sale, the bank requires the borrower to sign a note for the difference, or to acknowledge that the bank has the right to take action to collect that amount. Also, probably sometime later, the bank sends out a 1099-C, informing the I.R.S. that a certain amount of debt had been cancelled.

NO ONE who has dealt with a short sale would raise the question: “How could this happen? The two actions contradict each other!” That is because anyone who has been through the process knows that it is common for the right hand of the bank not to know what the left hand is doing. Indeed, it is not uncommon for the right hand not to know what the right hand is doing.

This is why it is important for the seller to be sure to keep his paperwork. If he signed a document to the effect that the bank was going to pursue its unpaid interest, he should hang on to that. Then, if he receives a 1099-C saying that the debt was forgiven (and, therefore, taxable), he will have support for the claim that the 1099-C is incorrect.

Conversely, suppose that there was no specific release of the debt and that the paperwork contained no reference to it. Then, if the seller receives a 1099-C, saying the debt was cancelled, he should keep that, just in case the bank, or its assignee, comes calling a year or so later, trying to collect the debt.

None of what has been said here should be construed as tax or legal advice. I am not certified to do that sort of thing. But I hope this little piece will encourage short-sale sellers to consult with their appropriate advisors about these matters.

*************************************************************************************** 

Jerry LaRose is an Orlando Area Residential Real Estate Expert, who can assist you with the purchase and/or sale of Real Estate in Orlando, Windermere, Winter Garden Florida or any place in the country. Jerry has created a team of professionals throughout Orlando and the country to ensure that you enjoy a smooth transition to your new area. Please visit http://OrlandoShortSaleExpert.com or www.JerrySellsOrlando.com for your real estate needs.  Please give me a call if you have questions about the Orlando and Central Florida real estate market.

P.S. If you are listing your home as a short sale in Orange or Osceola County Florida and Orlando, Windermere, Winter Garden,  Kissimmee or Ocoee Florida make sure you hire an agent who knows how to do short sales and has the experience to get the job done. We are doing successful short sale packages. Call us at 407-580-7011 to find out more about Orange County Short Sales and Orlando Area Short Sales.

jerrylarose Seller Advise, Short Sale Tax Consequences, Short Sales Short Sales & Taxes

Congress continues to make changes in the tax code in response to the housing crisis. A key change helps millions of homesellers who owe more on their mortgages than their dwellings are worth. These sellers have negative equity — a condition known colloquially as being upside down or underwater. Legislation that went on the books at the start of 2007 significantly benefits some upside downers and does absolutely nothing for others.

This is how the break works. Suppose Jane Sellers disposes of her residence in a lender-okayed short sale that erases the unpaid part of her mortgage. Or suppose the lending company forecloses on the dwelling, subsequently sells it and cancels a portion of her debt. Generally, the tax code calls for Jane to report partially or entirely forgiven amounts on her 1040 form. Not any more. The Mortgage Forgiveness Debt Relief Act of 2007 includes a provision that allows homesellers like Jane to exclude as much as $2,000,000 of canceled debt.

Jane excludes (sidesteps) taxes only if she satisfies two stipulations. First, the security for her mortgage is her principal residence, meaning the place she ordinarily lives most of the year. Second, she incurs the debt to buy, build or substantially improve her principal residence. There is no relief for Jane’s home equity loans or cash-out refinancings, except to the extent that she uses the proceeds to make improvements. Other fine print prohibits relief if her lenders forgive debts on vacation homes and other second homes or rental properties.

Long-standing rules generally require debtors to report all forgiven debts on their 1040 forms, just the same as income from salaries or investments. The Internal Revenue Service taxes forgiven amounts at the rates for ordinary income from sources like salaries. Some forgiven debts sidestep taxes. The law specifies several carefully hedged exceptions. They include bankruptcies and insolvencies.

The exception introduced in 2007 benefits people whose debts are reduced or cancelled in arrangements that are known as loan modifications, foreclosures, deeds in lieu of foreclosure and short sales. This last category is the term for an owner who — with lender approval — sells for a net sales price (gross sales price minus legal fees, broker’s commission and other costs) that is insufficient to cover all of the outstanding debt.

In tax lingo, the exclusion is for income from the discharge of QPRI, short for qualified principal residence indebtedness. This means mortgages taken out by owners to buy, build, or substantially improve their principal residences. And the residences are the securities for the debts.

There also is an exclusion for debt reduced through mortgage restructuring, as well as for debt used to refinance QPRI. Here, there is relief, but only up to the amount of the old mortgage principal, just before the refinancing.

Another constraint is that the exclusion does not help homeowners who took advantage of the run up in real estate prices to do “cash-out” refinancing, in which they did not use the funds for renovations of their primary residences. Instead, they used the funds to pay off credit card debts, tuition charges, medical expenses, or certain other expenditures.

***************************************************************************************

Jerry LaRose is an Orlando Area Residential Real Estate Expert, who can assist you with the purchase and/or sale of Real Estate in Orlando, Windermere, Winter Garden Florida or any place in the country. Jerry has created a team of professionals throughout Orlando and the country to ensure that you enjoy a smooth transition to your new area. Please visit www.JerrySellsOrlando.com for your real estate needs. Please give me a call if you have questions about the Orlando and Central Florida real estate market.

P.S. If you are listing your home as a short sale in Orange County Florida and Orlando, Windermere, Winter Garden, or Ocoee Florida make sure you hire an agent who knows how to do short sales and has the experience to get the job done. We are doing successful short sale packages. Call us at 407-580-7011 to find out more about Orange County Short Sales and Orlando Area Short Sales.

jerrylarose President Bush's Plan, Short Sale Tax Consequences, Short Sales, taxes after a short sale IRS tax code on short sales, Orlando Foreclosures, Orlando short sale expert

jerrylarose Short Sale FAQ's, Short Sale Riches, Short Sale Tax Consequences, Short Sales, Uncategorized Luxury homes, Orlando Real Estate, Orlando short sale expert & Specialist, Windermere & Winter Garden Fl. real estate

1. First and foremost I would always recommend anyone considering a short sale in the Orlando area to talk to your tax advisor first.

2. I posted in my FAQ’s on short sales the following:

Is the seller going to get hit with a tax bill or a 1099 if you do a short sale?

Upon successfully closing a short sale, lenders will always report a loss to the IRS and issue a 1099. However, the Mortgage Forgiveness Act of 2007 was signed into law on 12-20-07 and is now official, effectively getting rid of the question “will I be taxed on the Short Sale”. Prior to this action, forgiven mortgage debt due to foreclosure, short sale, or deed in lieu of foreclosure, was potentially taxable income to the borrower.

This was the subject of much media attention and led to many questions and concerns from Sellers wondering whether or not they were going to get “hit with taxes” on the Short Sale.
The new law, however, temporarily waives these taxes for debts forgiven (as high as 35%) from the beginning of 2007 to the end of 2009.
This will effectively put an end to the question from Sellers… will I be taxed on the Short Sale discount. The definitive answer (at least until the end of 2009) is NO!

For a copy of the Mortgage Forgiveness Debt Relief Act of 2007, go to:
http://www.govtrack.us/congress/bill.xpd?bill=h110-3648 or http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html

However, I would like to amend that statement and say talk to your tax advisor or attorney, I recently met with an attorney and got a clarification on this law. It was his understanding that this rule only applies to homeowners that occupy the residence and this is and has been their principal residence for the last 2 out of 5 years. YES, your principle residence and you must have lived in for the last 2 years.

I also understand that if you took a Heloc loan or an equity loan and it was not used on and for the home you also may get taxed on this amount even if it’s your primary residence. In other word if you took out a Heloc loan for $50,000 and spent it on a boat. Sorry, you have to pay the tax consequence on this amount if the bank eliminates this debt.

The bottom line here is that only Acquisition funding can be forgiven by the Mortgage Forgiveness Debt Relief Act of 2007.

3. Foreclosure, Deed in Lieu and Short Sales are all treated the same in regards to taxes.

Summary: Any cancellation of debt is a taxable event except for any acquisition funding for your primary residence that you’ve lived in for the last 2 years. Everything else is taxable.

OrlandoShortSaleExpert Short Sale Tax Consequences, Short Sales Orlando Foreclosures, Orlando Real Estate, Orlando short sale expert & Specialist, Tax consequences on short sales, Windermere Fl real estate, Winter Garden Fl. Real estate