Have you sold your Real Estate via a Short Sale? Are you aware of two new laws may help prevent tax confusion?
CA AB458—The California Anti-Deficiency law—allows a homeowner to sell their real estate via a short sale (selling for less than what is owed). However, the law does not allow the lender or bank to pursue the seller for the amount that was not repaid because of the short sale. This means that the short sale can be completed without worrying about being sued afterwards by the lender that agreed to the short sale.
The Mortgage Debt Relief Act (ACT), the second law, was extended through this calendar year by the Internal Revenue Service (IRS). The state of California did not extend the law so ACT does not apply to California sellers.
Recently, United States Senator Barbara Boxer (D-CA) sought clarification from the IRS with regard to tax impact of California families who have sold their homes in a short sale. The IRS response stated that the anti-deficiency law in CA does under some circumstances allow CA homeowners in a short sale a property with no need to pay tax in the canceled debt.
“The key point is this: if a homeowner has refinanced at any point and pulled out cash, then the ACT does not apply,” Cain said. “The IRS clarification means that a California homeowner selling a property may be protected under AB458 and also not be forced to pay tax on the debt that is canceled. This gives the seller another reason to exclude the canceled debt from income.” In essence, the IRS will not penalize CA families losing their homes in short sales.
The Cain Advisory Group combines a small business attorney, tax preparation and tax services, bookkeeping services, accounting services, and small business payroll services leading to small business solutions. By creating coordinated service packages, the firm manages back office functions that allow business owners to focus more on new business development.
“Short sale laws are a biggie and can cost you thousands of dollars,” Cain said. “Our firm is offering a Short Sale Tax Analysis program today. We’ll recreate your tax return and give you a written summary of potential tax impacts and help you decide whether to complete a short sale.”