Buyers now have now have until September 30, 2010 to close on their homes and still qualify for the Homebuyer Tax Credit!!!

Tax Ramifications 

The laws are constantly changing in this volatile economy.  It is best to consult with your accountant and attorney for the constant updates. 

Upon successfully closing a Short Sale, lenders will always report a loss to the IRS and issue a 1099.  However, the Mortgage Forgiveness Act of 2007 was signed into law on 12-20-07 and is now official, effectively getting rid of the question "will I be taxed on the Short Sale".  Prior to this Act, forgiven mortgage debt due to foreclosure, short sale, or deed in lieu of foreclosure, was potentially taxable income to the borrower.

This was the subject of much media attention and led to many questions and concerns from Sellers wondering whether or not they were going to get “hit with taxes” on the Short Sale.

The new law, however, temporarily waives these taxes for debts forgiven (as high as 35%) from the beginning of 2007 to the end of 2012.

This will effectively put an end to the question from Sellers... "will I be taxed on the Short Sale discount of my primary residence?"  The definitive answer (at least until the end of 2012) is NO! 

Again, please consult with your accountant and attorney for the most up-to-date laws and regulations as they pertain to your situation. 

For a copy of the Mortgage Forgiveness Debt Relief Act of 2007, visit http://www.irs.gov/individuals/article/0,,id=179414,00.html