In a short sale, homeowners sell their homes for less than they owe on the mortgage. If the lender who approved the short sale forgives the remaining balance they are normally required to issue short sale borrowers IRS Form 1099-C, Cancellation of Debt. This forgiven debt or "cancellation of debt" is normally considered taxable income.
Mortgage Forgiveness Debt Act 2007
This Act allowed taxpayers to exclude certain types of forgiven debt from their taxable income. This law only applies to debt that was forgiven in 2007 through 2016, or to debt that is discharged in 2017 if there was a written agreement entered into in 2016.
Since the Mortgage Forgiveness Act has expired does that mean homeowners are stuck with this additional tax penalty? Not necessarily. There are situations where the cancelled debt can be considered nontaxable however each situation is unique.
For legal or tax advice contact a licensed professional. For help with a short sale, I have experience with selling homes where the homeowner owes more than the value of their home.
ORANGE COUNTY HOUSING REPORT
The shortage of new and existing homes coming on the market is driving prices up and constraining home sales. Home price appreciation in California for 2018 is forecasted to increase 4.2% according to the California Association of Realtors. Housing prices are growing at the fastest pace in nearly 2 years.
TAX REFORM AND ITS IMPACT ON REAL ESTATE
The 2018 Tax Reform Act that was signed into law at the end of 2017 impacts: Individual Tax Rates, Standard Deductions/Personal Exemptions, Child Tax Credits, Itemized Deductions and other items.
Some of the things that will affect most homeowners and potential home buyers are the following:
The news for Orange County Real Estate real estate in 2017 has mostly been good. Although inventory levels are low in many markets, there has largely been enough listing and building activity, or at least conversation about future activity, to keep prices from skyrocketing toward another bubble. Low affordability has started to become a recent topic of conversation and is definitely worth watching. But with a healthy economy, level of demand and national unemployment rate, sellers are going to be hard-pressed to lower prices.
For Orange County New Listings were down 9.4% for Single Family homes but increased 6.5% for Townhouse-Condo properties. Pending Sales decreased 42.2% for Single Family homes and 36.7% for Townhouse-Condo properties.
From this time last year, the Median Sales Price was up 4.5% to $667,500 for Single Family homes and 3.6% to $430,000 for Townhouse-Condo properties. The Supply of Inventory decreased 12.9% for Single Family units and decreased 16.7% for Townhouse-Condo units.
Source: Pacific West Association of Realtors Residential activity in all PWRAOR areas of LA and Orange County CA
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