When Debt Relief Is No Relief At All

Considering some sort of debt relief, a short sale or loan modification soon? Here’s another reason to think fast.
Selling your home with a short sale this December could mean a LOT more cash in your pocket than selling or even doing a loan modification next January.

Here’s why. In case you didn’t hear, the government taxes everything. A lot, if it can get by with it…it even taxes your debt relief!

You wouldn’t think the IRS would have anything to do with a contract you made with a bank (your mortgage) or even if you renegotiated your terms (your loan modification), but you’d be wrong.

Any form of debt relief is considered a “benefit.”  And it does seem like a real benefit to the homeowner that’s behind on house payments.

If the lender negotiates a short sale or if the lender negotiates a new lower loan amount in exchange for the past higher amount; the difference is a benefit. Even if the lender forecloses on the homeowner, the homeowner would realize a “benefit” of the canceled debt.

But think about this. That difference is usually written off and the amount is put on a form 1099-C. The ugly truth is that you would have had to pay Federal taxes on that money you were relieved of. The cancelled debt is considered “income” by the Federal government, even if you never see a dime of that money.

Until the end of this year 2012, however, due to The Mortgage Debt Relief Act of 2007; this amount is also forgiven. You don’t have to pay taxes on it — but only through the end of this year.

If you needed another extremely beneficial reason to do something about your late payments and current mortgage situation, this is it. The time to move is now.

I realize this doesn’t seem like a benefit per se, not paying taxes on any debt relief in 2012. But just think about the consequences if you don’t make the 2012 deadline and you really wanted to sell your house fast this year…

Say your bank forgave $100K of your mortgage. If your are married and filing jointly and you make $100K, then your taxes would be around $17K. Adding in that forgiven debt amount of 100K would add almost $27K to your tax burden in this same year! (That’s taking no deductions.)

Imagine what having that $44K tax debt would do to your “relief!” Out of the kettle and into the fire…goodbye mortgage troubles, hello IRS. Yuck.

Last week I told you about the extension of HAFA through 2013. But this tax relief is only in place through the end of this year 2012. Beginning January 1st, 2013 (less than six months from now) you’ll be on the hook for taxes on that amount again — even if you do a loan modification or a short sale.

Time goes pretty quickly. And if you’re in the middle a loan modification with a bank, they don’t seem to be in much of a hurry.

That’s because you are not alone, there’s a backlog of paperwork inside mortgage companies due to these deals.

The good news is that if you have a buyer lined up to purchase your house quickly, then one huge part of the process is already squared away. Having a buyer or investor like Markette Properties on your side may even pave the way for a faster closing.

What else do you need to know about qualifying for this tax break?

  • The property has to be a personal residence.
  • It can’t be a vacation home or investment property.
  • The maximum write-off is debt relief benefit of $2 Million. ($1M if you’re married and filing separately.)

So “Heads up:” If you’re thinking of acting on a short sale or loan modification, it might be wise to consider selling your home fast to someone who’s ready to buy houses in San Antonio or your area. The time is right now to take full advantage of the debt relief tax break and talk to someone who can buy your house today and ease the burden of missed or late mortgage payments.

We can buy your house fast in Texas! Markette Properties presents an unique, simple approach for selling your home! We are real estate investors. We buy houses in Texas just like yours! We are dedicated to the highest professional real estate standards for all of our clients.

Do you want to sell your house fast in Texas for top dollar with the least hassle? Give us a call! (210) 853-2788 or click the button below.


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