Tax Relief Expires on 12/31/2013 - Riverside, CA Real Estate

Homeowners in Riverside, CA or the Inland Empire can still benefit from the Mortgage Debt Relief Act and avoid any tax liability when doing a short sale, but they have to act NOW.

Before this Act, many homeowners often had their outstanding home mortgage cancelled by their lender. However, they did not understand that this cancelled debt was considered taxable income by the IRS. This law is set to expire at the end of 2013, so debt cancelled in 2014 or later will be considered income in the year received.

No house + extra taxes = double pain

How Short Sales Work

Sometimes, rather than trying to take back a home, a lender will allow a borrower to sell the house for less than the mortgage amount. This is called a “short sale”.

Here is a quick example:

Let's pretend you lost your job and can't keep up the payments on your home in Riverside, CA. You still owe $300,000 on your mortgage, but the house value has dropped to $275,000. If the bank agrees to a short sale, you would sell the house, pay the commission and other closing costs – let's say it's $15,000 – and turn the remaining $260,000 over to the bank. If the bank then forgives the $40,000 gap between this $260,000 payment and the $300,000 mortgage balance, the forgiven $40,000 would show up as cancelled debt on a special form sent by the lender called Form 1099-C. This $40,000 is usually considered taxable income.  
But, thanks to those tax law changes, when a short sale through 2013 involves a principal residence, the cancelled debt is not considered taxable income.

Back to Work Program

We got some great news a few months ago when the Federal Housing Administration decided to reduce the waiting period for a homeowner to qualify for a new FHA loan after a short sale, bankruptcy or foreclosure. Now Riverside homeowners could buy again in as little as 1 year as long as the guidelines are met. 


This information is brought to you by your Riverside CA Realtor: Catalina Castaneda. Specializing in homes and real estate in Riverside CA and the entire Inland Empire.