Selling A House At A Loss...?

[Katieinwonderland]

My BIL and his wife are doing this, and it is because they want a bigger house!

They bought a 1 bedroom apartment in the city (about 800sqft) a few years back for just under half a million. Now they have a little girl and they want another baby, but they just don't have the space they need right now. They're having a house built, and they're taking a huge hit on the old place - but they don't want to wait any longer to have another baby and they definitely need more space for my niece.

I know they hate the fact that they're losing all this money but that's just how it is for them right now.

 

[Lisa loves Pooh]

For the taxable "forgiveness" on a short sale--I thought there was an extension of some bill that allowed a certain amount to not be taxable.

I'm not sure what that was, but for some short sales/foreclosures--that would mean they could sell at a loss, but not be up the creek on taxes.

Credit card settlements, don't work the same way as far as I know.

 

[Jestocost]

For the taxable "forgiveness" on a short sale--I thought there was an extension of some bill that allowed a certain amount to not be taxable.

I'm not sure what that was, but for some short sales/foreclosures--that would mean they could sell at a loss, but not be up the creek on taxes.

Credit card settlements, don't work the same way as far as I know.

Correct.

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately).

Debt forgiven through a short sale qualifies for the above exemption provided all other requirements are met. There are a bunch of limitations and caveats, so anyone who has tax issues related to debt forgiveness should consult a tax professional.

See more at the link to the IRS site below:

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

 

[GaSleepingBeautyFan]

In our neighborhood, one single Mom neighbor needed to sell her house fast a few months ago after losing her job and not able to find another. (her son was my sons best friend at the time so that's how I found out about it) She found a buyer but the bank wouldn't approve her for the short sale.

She has now walked away from the house because she couldn't afford the payments and it is going into foreclosure because she tried to find a renter and couldn't.

They've moved far away and the boys have very little contact now since her son doesn't have a cell phone anymore. It's a sad situation.