Tax Relief on Short Sales and Foreclosures

For the Homeowners who are experiencing a "Short Sale" or Foreclosure proceedure where the proceeds from the sale are less than the amount owed, here's some tax relief benefits for you. In the past, the forgiven debt (the amount owed on the property less the amount for which the property was purchased) had to be treated as taxable income on your tax return. But, now through 2012, that forgiven debt will NOT be taxed as income. There is a limit of up to $2 Million of forgiven debt on a principal residence. You do not have to put the amount on your tax form, even if you receive an IRS Form 1099 from the Lender.

Tax credits are actually some of the best form of tax relief for they are direct dollar-for-dollar reduction of your tax liability. And, for first-time homebuyers taking advantage of the $8,000 tax credit for purchasing (see previous blog), if the credit is larger than your tax liability, you will receive a refund! As always, check with your tax professional for further information.