Tax Exemption for Las Vegas Short Sales Set to Expire at the End of 2012
The green light may turn red at on December 31st 2012 for sellers of their personal residences who may want to do a short sale in Las Vegas. The Mortgage Debt Forgiveness Act of 2007 expires on December 31st of this year. This Act allowed for sellers who were foreclosed, sold via a short sale or completed a Deed-in-Lieu of foreclosure to be exempted from any tax liability related to their mortgage debt on their principle residences as long as a few basic conditions were met. Debt used to either purchase the home or used for improvements (must be documented) to the property was eligible for exemption.
When a home is sold at a loss to the bank, a gain is realized by the owner. How could this be when the home plummeted in value many would wonder but it works like this: The bank loaned a homeowner $350,000 to purchase a home. They only got back $175,000 after a short sale. The bank lost $175k. The homeowner gave them back $175,000 less than they borrowed. That portion is considered a gain and could be taxed at the owner’s normal income tax rate…ouch! The Mortgage Debt Forgiveness Act addressed the insanity of punishing devastated homeowners even further than merely losing the home by also taxing them.
Unfortunately, this benefit is now coming to an end. Given the fact that a Las Vegas short sale frequently takes 4-6 months to complete when you factor in the extra time a buyer needs to close on a home, homeowners that want the certainty of knowing they can still take advantage of the Mortgage Debt Forgiveness Act of 2007 need to take action. There is a clear mandate for sellers to sell their home in 2012, but not beyond. Any rumors of an extension to the Act are just that right now…rumors.
This article is not meant to be used as tax advice and is only a discussion of the general principles related to the Mortgage Debt Forgiveness Act of 2007. Only a tax professional can and should be consulted to know the impact of a short sale based on your personal circumstances.
Paul Rowe manages the short sale division at Shelter Realty. If you would like to speak to him directly, please call Shelter Realty at 702-376-7379 or email him at info @ shelterrealty.com.
About the Author
Paul Rowe is a real estate investor and REALTOR® with Shelter Realty Inc. He can be reached at (702) 376-7379. With hundreds of short sales negotiated successfully over the past 12 years, Paul works exclusively with distressed property owners and potential foreclosure and short sale victims in Southern Nevada who owe more on their mortgage than their property will appraise for.