Will I owe income taxes if I do a short sell on my home in Downey, CA?

Will I owe income taxes if I do a short sell on my home in Downey, CA? It depends and you should really be asking your tax adviser....because only he/she can give you the right advice...and...since I am not a tax expert, and this is not tax advice and is for informational purpose only, I must repeat you would be better off checking with your tax adviser...but....

JUST FOR YOUR INFORMATION:

If you purchased a home in Downey, CA (or Long Beach, CA or anywhere in California) and NOW owe more than it’s worth...and...you want to short sell it... thanks to: "The Taxpayers Relief Act Of 2007*," you may not owe any income taxes if you short sell your home...but. . . there are some restrictions: it must be your primary residence and you must close escrow by 12/31/2012!

There is also a provision for those who short sell their rental in Downey, CA where you can also be excluded from owing income taxes on a short sale of a rental but like I keep saying, you need to talk to YOUR tax expert for tax advise or you can go to the IRS website!

In the past, if you had “debt forgiven,” the IRS would consider that "debt forgiven" that as income that you earned and wolud have report that on your income taxes as income to you and therefore pay income taxes on that "debt forgiven"... but... if you short sell your home and close escrow by 12/31/2012, the IRS will not count "debt forgiven" as income and therefore will not tax you as if you earned that income...

You may thinking: “oh, I have plenty of time to short sell my home in Downey, CA” but in this type of real estate market you never know how long it will take to get your home sold. If you price it right it will sell fast and if it’s in top condition it will sell even faster but even if you were to get an offer today, you still would not close escrow in 30 or even 45 days. Depending on they type of offer you get and how receptive or flexible or willing your lender is and depending on your bank negotiator; all that will dictate how long the escrow process will be. And then, there is always something that might cross your path and prevent you from closing on time. There are so many unknowns that it would be impossible to guarantee that your home in Downy will close escrow in 30 days, even if you get a CASH offer.

The escrow process is like having a baby, the doctor gives you a due date and rarely is it the actual date of delivery. Your escrow process could take up to three months, in some case even more, and the marketing time and negotiations with your lender can take up to a year.

So if you were planning on short selling your home in Downey, CA and you are thinking that there’s plenty of time to make that decision, please think very carefully because you may not have as much time as you think...."time waits for no man" and 2012 is just around the corner.

*Please make sure that you check with your tax adviser whether "The Taxpayers Relief Act Of 2007!” applies to you; only he/she can tell you for sure if you will or will not owe income taxes on the sale of your primary residence on a "short sell" of your Downey home.

Thank you for reading and for your comment.

Please visit my Website: www.PintoRealtyInc.com/ OR <Free Home Search: Click here!>

Sincerely,

Aida Pinto

Real Estate Broker/Notary Public {Direct: (562) 916-3237, Cell: (562) 884-6196} {United Associated Brokers, 11561 Paramount Blvd., Downey, CA 90241} {DRE Broker Lic. 00972295. In business since 1987 and proudly serving the Los Angeles County area} Disclaimer: The information given on this post, blog, website or any other site is solely for informational purposes. Aida Pinto is a California Realtor since 1987 and a real estate broker since 1994 and also a Notary Public since 1988. She is not an attorney nor a tax accountant and this is not legal or tax advise. All information provided by this Broker is deemed reliable but not guaranteed. Please consult with an attorney for legal matters or a tax professional. http://www.irs.gov/individuals/article/0,,id=179414,00.html