SAN DIEGO, Feb. 3, 2012 /PRNewswire via COMTEX/ — Indicating most homeowners awaiting loan modification approval and contemplating short sale or foreclosure are not aware of all consequences with regard to their decision, San Diego short sale realtor Joy Bender has launched a campaign to educate defaulting homeowners on potential tax repercussions.

Bender, who currently works as a short sale realtor in San Diego and is affiliated with Trinity Homes and Investments, informs distressed homeowners the Mortgage Forgiveness Debt Relief Act is expiring December 31st, 2012.

“In general homeowners believe the government will extend this tax provision,” Bender said. “However, as evidenced by the First Time Homebuyer Credit expiration in 2010, you can’t always count on the government to bail you out.”

When banks write off debt it is considered a taxable event. Your lender should send Form 1099-C, Cancellation of Debt at the end of the year. This will need to be filed with your taxes the following tax year.

For example, if you owe $750,000 on a property and the lender takes a loss of $375,000 through a loan modification principal reduction, short sale, or foreclosure you would owe the IRS $131,250 in a 35% tax bracket, $93,750 in a 25% tax bracket, or conservatively $56,250 in a 15% tax bracket.

“Most homeowners in default today are waiting on a loan modification approval. They fail to recognize that most loan modifications never get approved with acceptable terms. Inevitably most loan modifications permanently fail after months of negotiating and processing paperwork. This could leave you vulnerable with no time left to take advantage of the Mortgage Forgiveness Debt Relief Act,” Bender indicates.

Generally short sales can take from 3-6 months to close. However, there are always exceptions where they can take upwards of 12 months or more to close.

“It is important that homeowners switch from being reactive to proactive. If you continue to procrastinate you are jeopardizing your family’s future with a potential large IRS debt,” Bender advises. “It is essential to consult with an attorney and tax advisor regarding potential recourse and tax liability.”

SOURCE Joy Bender

Copyright (C) 2012 PR Newswire

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