Tax Break For Short Sales

Short sales have never been the foreclosure alternative of choice among homeowners or lenders until recent years. As more homeowners were denied loan modification options or other mortgage debt solutions, short sales have gained popularity. However, they weren’t accepted without caution. In the past, short sales have been subject to some significant tax issues.

Short Break On Taxes In Short Sales

The Mortgage Debt Relief Act allowed for a temporary break from taxation on short sale transactions. Prior to this break, homeowners who sold their homes in a short sale were subject to taxation on the income from the sale even though that profit was given to the lenders in exchange for being absolved from debt liability. Further, if the lender forgave the homeowner of any deficiency balance charges, that too was taxable.

Thanks to the program implemented in 2007, homeowners have been able to sell their homes without having to pay tax on the deficiency balance charges forgiven by lenders. However, time is running out for homeowners to benefit from this program, which is set to end in 2013. Homeowners have one more year of getting out from under their mortgage debts in a short sale without being subject to taxation.