Northern Virginia Short Sales and Mortgage Debt Forgiveness by the IRS
The most common concern a Northern Virginia Short Sale Seller has when I meet with them is, "Can you get my short sale approved?" I don't have a crystal ball, but three years of experience in the arena of Northern Virginia Short Sales tells me that my clients stand a better chance of approval just by hiring me. I know what banks are looking for when they review these packages, and I know how to talk to them. That's not the point of this post.
The thing I think most Northern Virginia Short Sellers should focus more energy on is the inevitable Form 1099 that your mortgage lender(s) submit to the IRS after your home is sold through Short Sale, in Foreclosure or after surrendering your property through Deed in Lieu of Foreclosure. Seems there's no way to avoid that nasty Form 1099.
A 1099 is the form submitted to the IRS for wages earned when taxes have not been collected. The mortgage debt that remains in the sale of a home with a mortgage balance that exceeds the sale price, shows in the 1099 to the person who took out the loan.
Let's say you owe $400,000 on your home, but can sell it for $300,000. That means you can expect a 1099 from your lender for the difference of $100,000. If you don't fall into the federal exceptions provided under the Mortgage Debt Relief Act (effective 2007-2012), you may owe income taxes on that $100,000.
There are limits to the amount of forgiveness, but most average Northern Virginia Short Sale Sellers will never touch it (one million dollars for a single person, two million for a married couple.) Other exclusions would be if the home sold was not a primary residence, or there was a home equity line of credit, or refinance, that did not go to pay for, or improve, the principal residence.
I'm not a Tax Attorney. That's why I send all of my Northern Virginia Short Sale Sellers to one. IRS tax debt will not be waived away with a bankruptcy. And whether or not a Northern Virginia Short Sale is approved, the owner of that residence will see a 1099 after Deed in Lieu or after a Foreclosure sale. There really is no escaping the IRS, so it's best to know where you stand as Northern Virginia Short Sale Seller sooner rather than later.