Don’t wait too long!
The Mortgage Forgiveness Debt Relief Act of 2007 is due to expires at the end of 2012. The way our Congress has been cooperating, we can’t count on this legislation being extended. It excludes up to $2million of cancellation of debt secured by a principal residence from your taxable income.’
If you have been waiting for your mortgage holder to start the foreclosure process on your delinquent mortgage, you may want to seek a short sale of your residence soon.
It’s important not to wait too long. A short sale often takes 4-6 months, sometimes longer, and at the end of the year there will be many short sales in play with everyone trying to meet the deadline. Most lenders are understaffed for short sales anyway, so this could become a huge bottleneck.
Contact your accountant to learn what the downside is if you lose control of the process. Ask a lender what happens if you do a deed-in-lieu or allow the foreclosure to proceed rather than completing short sale.
If you have done a short sale and receive a 1099C, it can be quite a shocker due to the large dollar amount. If this was your primary residence, you will need to file the appropriate form with your tax return to show that the short sale was either on your primary residence, or that you were insolvent in the case of investment property short sale, to claim the exemption from taxation on the forgiven debt.
