When you are faced with losing your home, whether it is voluntarily by means of a Short Sale Solution or by Foreclosure, it is important to understand the potential tax burden is a “Constant”. You will have to determine the right course of action to mitigate the ramifications of the forgiven debt. Do not be alarmed. Focus on the solution for the mortgage and the house. The mitigation of the 1099C for the potential taxes on the forgiven debt will fall into place.

Every one of our customers is scared of three things when considering a Short Sale Solution.

• How will this affect my Credit?
• What about the Taxes Ramifications?
• What about the Deficiency or otherwise the Personal Liability?

These three questions cause most people a significant amount of stress and loss of sleep. With a basic plan it doesn’t need to be this way. I want to briefly focus on the tax question.

The 1099C is a federal reporting requirement for forgiven and unpaid debt placed on the lenders by the IRS. Anything to do with the IRS scares people to death. Step back for a moment. This is only a reporting requirement and not a henchman’s order to come and drag you and your family to the castle dungeon.

If you worry so much about the “Constant”, and you don’t address a solution for the mortgage and the house, then you are going to have a much bigger problem with foreclosure and you will still eventually have to address the tax issue.

Put the solution for the mortgage problem at the forefront and take some time to research mitigation strategies for the potential tax issue. Our program outlines four primary areas that you can take to your tax advisor to mitigate the tax issue without the worry.

The vast majority of homeowners that are considering a solution with their primary residence will be protected from any tax burden on forgiven debt under the Mortgage Forgiveness Debt Relief Act of 2007. It’s almost been a year since this legislation has passed and most people are either unaware of it or unsure and it causes them stress.

In a normal setting, debt forgiveness would result in taxable income. The new legislation allows for the exclusion of tax on up to 2 million in forgiven mortgage debt on your primary residence.

For more on this legislation go to IRS.gov and look up IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. You can always give Uncle Sam at call as well at 800-Tax-Form (800) 829 3676 and ask about form 982.

If it is not your primary residence our program will guide you through what you need to suggest to your tax advisor to address the tax issue. There is no reason to be alarmed. Simply consult a tax advisor or accountant in the calendar year when you complete your short sale.

There is a solution to the tax issue through proper mitigation, accounting, and filings that will protect you. All the laws and avenues of mitigate regarding this issue already exist so please stop worrying yourself to death.

Nobody wants to deal with the Tax Man because his reputation precedes him. That is certainly understandable. However, given the magnitude of the housing crisis, this is not one of those times to be afraid. Focus on the solution and you will be ok.

GHunter

Submitted on Tuesday, October 28th, 2008 at 7:40 pm