Urgent Advice for San Diego Homeowners
If you wish to escape some potentially devastating income tax consequences–and are underwater on your San Diego home mortgage–you may want to consider listing your home as a short sale immediately.
Even the New York Times has issued a dire warning:
As it stands now, any mortgage debt forgiven by a lender in a short sale, loan modification or foreclosure is exempt from federal taxation. Come Jan. 1, that exemption expires.
Borrowers will have to count mortgage relief from lenders as income on their federal tax returns. That means, for example, a borrower would have to pay taxes on a $100,000 reduction in principal owed on a loan, or a $20,000 write-off in the amount owed after a short sale.
This would have the potential to push already-strapped homeowners into not only higher income tax brackets, but having to pay taxes on “phantom income.” Many of these same people made substantial down payments and have already seen that money go out the window. Now, they have the looming and scary possibility that they may owe taxes on debt forgiven by the bank in a short sale that occurs after January 1, 2013.
Of course, Congress might decide to extend the current protection for homeowners, but with current debt load Congress may fail to act.
Our advice? If you are under water on your mortgage (owe more than the home is worth), please consider trying to do a short sale immediately. Call us, call your own Realtor, but be sure to deal with a professional who understands not only the short sale process, but the true urgency in getting it through escrow before the year-end deadline. For additional information, please feel free to call us at 877-818-8197.
If you wish to do a loan modification, please call your lender directly and state your wish to do so–as quickly as possible in order to avoid punitive taxation. Alternatively, you may wish to call HUD directly at 800-569-4287 to discuss your options.