Short Sales and Impending Tax Implications?

Question

I was laid off 09/2008 and have still not found steady employment. I tried unsuccessfully to do a loan modification with our lender for almost one year. We owe 472k on a house we paid 275k for back in 2002. This has been our primary residence since then, we are now in the process of shortselling and a buyer's offer of 400k has been submitted to our lender. I think there are too seperate items at play. First, the lender can come after me for 72k, the difference owed. Second We will be taxed on the difference of the net sales price of the home versus what we paid for it (400K-275K = 125k). Is this correct? How does the Mortgage Debt Relief Act of 2007 factor in?

Answer 1

Best Answer - Chosen by Voters

You are upside down in your mortgage, the lender should be happy to get when he can. Should be, but reality might be different. You can always just walk away.

The lender can't BOTH forgive your debt / write it off AND go after you to collect. They would have to choose. If they give you a 1099-A or 1099-C, they are not collecting. Most lenders write it off.

The mortgage debt relief act can be your friend. There is a decent chance you won't owe taxes, but it might be worth while to have someone prepare your taxes next year. If you meet certain requirements, the money on the 1099 isn't taxable to you.

Answer 2

What did you use the refi money for? Any part of it that was not used for your home is going to be taxable to you unless you are insolvent or in BK.

The gain on the sale is not taxable as this was your home for 2 out of 5 years.

Helen, EA in PA