Did you know that there was a law enacted in 2007 that does not allow the IRS to tax forgiven money on a principal residence such as in the case of a short sale? This law is set to expire on December 31, 2012. Congress could agree to extend the tax forgiveness, but it may not happen.
Currently in a short sale situation when the homeowner owes more money than the house is worth, the mortgage lender will forgive some of the debt and the homeowner does not have to pay taxes on the amount of the debt up to $2 million. Without the tax law, the IRS sees that forgiven money as income and could tax it accordingly.
This situation leaves at-risk homeowners in a sticky situation if they are planning to list their home as a short sale. Most short sale transactions take three months or more to close. So you can see time is running out. Homeowners who are thinking about listing their home as a short sale may have enough time to attract a buyer and close before the year ends, but then again, they may not. It is a good idea for anyone who is considering listing their home as a short sale to contact a tax professional, a real estate attorney, and a real estate agent to review your options for a short sale or a foreclosure.
In southwest Florida there are still a large number of homes listed as short sales. Go the the local MLS at http://myfloridahomesmls.com/ and run a search in your area of interest. You can do an advanced search and select the box for short sale.
To read more about this go to the IRS web page on The Mortgage Forgiveness Debt Relief Act and Debt Cancellation at http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation-.