Christmas usually brings about holiday cheer and a large amount of debt. A law was enacted that allowed homeowners to avoid paying taxes on homes that were short sales, but that provision came to an end last year. Fortunately, California homeowners are now able to receive some form of debt relief on homes that were sold in a short sale.
Previously, if a homeowner received $300,000 from the sale of their home, but still had an outstanding balance of $450,000, the consumer would be required to pay taxes on the remaining amount, called cancellation of debt income. To protect taxpaying consumers, a letter was sent to the Franchise Tax Board to put a stop to this. Representatives stated that they would need to obtain advice from the IRS.
Eventually, the IRS stated that it would not impose taxes on homeowners who had outstanding balances from short sales. It also stated that California homeowners fall under federal guidelines which grant debt forgiveness. The tax-break has opened the door to allow struggling homeowners the opportunity to short sale their homes without having to worry about tax implications.
A short sale is a debt relief option that allows homeowners to bypass a foreclosure or bankruptcy filing while they find their financial footing. It can also save a consumer’s credit score. In many situations where a short sale is not beneficial, California homeowners elect to file bankruptcy as a solution to their debt. Bankruptcy can be a fast and efficient way for consumers to eliminate their debts and the right guidance can help simplify the process.
Source: fresnobee.com, George Runner: Short-sale tax relief brings holiday cheer, No author, Dec. 18, 2013