Taxes after Short Sales to Hurt Investors in Tampa, Florida

September 24th, 2008 by

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With an increasing number of Tampa foreclosure homes, short sales are also on the rise, especially involving home-owners who own homes that are currently worth less than what is owed on the mortgage. Lenders agree for a house to sell for lesser than what the home-owner owes on the home-loan and the remainder is written off. The home-owner is then free of any more obligations when it comes to the property, unless of course, the home owner had the home as an investment.

A short sale does take care of the debt that the home owner is involved in. Many people though are in for a shock in the coming tax season, for they will be assessed the tax on the amount that the lender forgave.

Before the Mortgage Forgiveness Debt Relief Act was signed by President Bush, all the home-owners who were involved in short sales had to pay the tax for the amount that was written off from the loan by the lender. According to the new law, home-owners do not have to pay that tax, up-to the original amount on the mortgage. This though, is only applicable if the home in question is the primary residence.

It seems that the legislators and the president have shown no sympathy towards investors who bought more than one property during the housing boom in Florida, and are having problems keeping up with their payments. If these buyers are fortunate and can get their lenders to approve a short sale, they will still have to pay the ensuing income tax.

An example in case is, if 200,000 is owed on the mortgage and the lender agrees for the home to sell for 160,000, 40,000 would be forgiven. However, if the home is not the residence of the home-owner, then the forgiven 40,000 would have to be claimed as income by the home-owner.

A lot of borrowers among foreclosure homes in Tampa who get the approval to conduct a short sale are unaware of this tax requirement. For investors who have bought many properties, this does spell trouble.

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