Detroit Real Estate

 Do I have to pay taxes on my Metro Detroit short sale?  Normally when a house goes into foreclosure a bank sends the owner a 1099 in the amount of the deficiency.  Deficiency is the difference between what the house sold for and what was owed on the house.

But a few years ago President Bush signed the Mortgage Forgiveness Debt Relief Act  which exempts acquisition or home improvement debt on one's primary residence from taxation.   Which is a great relief for all the homeowners that are losing their home.  It would be bad news to owe taxes on a home you lost.

The rules are:

•  The limit of the forgiveness is $1 million for single or $2 million for joint tax returns.

Right now banks can send a 1099 for second homes or investment properties that have gone into foreclosure or sold as a short sale.  Many Metro Detroit real estate agents tell their short sale sellers not to worry about a 1099 without asking their seller if they pulled money out of their home through a refinance.  If you paid off credit cards, or used the money to buy a car, or some toys then you could possibly owe taxes to Uncle Sam.  Will the tax man catch it?  I don't know.

The real estate agent needs to ask what the seller used the money for.  It could be a possible liability issue for the real estate agent.  If the seller gets a 1099 guess who is going to get sued.  It is best for the seller to check with a CPA and an attorney to find out their potential liability on doing a short sale.  That's why I always recommend all my clients to check with a CPA or an attorney before they going into foreclosure or put their home up for a short sale.