Does SS have to CLOSE by 12/31/2012 Midnight or can it be in "contract" for debt forgiveness relief?

[sonickitty]

I had understood that a short sale had to be completely CLOSED, by 12/31/2012 at midnight in order for forgiven debt to qualify to not be counted as income per the MDRA.

However, someone told me today per their realtor that as long as the house is "under contract" on 12/31/2012 it would still qualify under this law.

I don't believe anything until I've triple-quadruple verified and even then you never know..... I've searched and searched on this and only reference i can find is that it must be closed.

Anyone know if is the contrary and you just need to be "under contract" - which I guess means escrow?

Even if that were true - that's a little scary isn't it? Something can still go awry until it is completely CLOSED - yes?

[Evan Bedard]

I don't believe anything until I've triple-quadruple verified and even then you never know..... I've searched and searched on this and only reference i can find is that it must be closed.

Anyone know if is the contrary and you just need to be "under contract" - which I guess means escrow?

Even if that were true - that's a little scary isn't it? Something can still go awry until it is completely CLOSED - yes?

I'm not 100% sure myself, but from my understanding I believe the sale must be closed by 12/31 in order to be eligible under the debt relief act. However, one good thing is that most people are expecting this act will more than likely be extended an additional year or two while the housing market continues to rebound..

[Cat Damiano]

Hi sonickitty,


Unless that realtor moonlights as an accountant, I wouldn't believe them either. The tax forgiveness through the IRS is not something you want to be unclear about. You really need to speak with a tax professional in your state and ask these questions, or you can try contacting the IRS and asking as well;

Contact Your Local IRS Office

[sonickitty]

Hi sonickitty,


Unless that realtor moonlights as an accountant, I wouldn't believe them either. The tax forgiveness through the IRS is not something you want to be unclear about. You really need to speak with a tax professional in your state and ask these questions, or you can try contacting the IRS and asking as well;

Contact Your Local IRS Office

Thanks Cat and Evan. Yeah - I'm not quite that much of a risk taker to assume realtor is correct. Evan - unfortunately, I like many cannot wait for congress to maybe extend it no matter how likely it is - I guess there are more important things the politicians are working on like letting california fleece all of the $$ for home "owners" into the general fund and oddly having enough $$ for a frigging bullet train from SF to LA. Yeah - that's oh so important.

[Evan Bedard]

I agree they often focus on topics that are not a major concern to most of society and you can never be too certain they will move forward with extending the Act..

[susandee]

I had understood that a short sale had to be completely CLOSED, by 12/31/2012 at midnight in order for forgiven debt to qualify to not be counted as income per the MDRA.

However, someone told me today per their realtor that as long as the house is "under contract" on 12/31/2012 it would still qualify under this law.

Sonickitty: The IRS website has an example of a 1099-C on page 13. http://www.irs.gov/pub/irs-pdf/p4681.pdf Note the box "Date Canceled". I highly doubt that this box can be completed unless the sale has been finalized. Plus, there is nothing to forgive if nothing has been reported by the bank. And....if there is no sale, there is nothing to report. I cannot imagine that a sale completed in January 2013 can be backdated for inclusion in 2012. I think the IRS would consider that fraud. Realtors need to be careful when giving out "legal" advice. They can be sued pretty easily for giving out bad advice. Here is the IRS link for the Act The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

[readytoswim]

Sonickitty,

You might also look at how to determine if you are insolvent or not. Even though the mortgage debt relief act is set to expire there is another way to be relieved of taxable cancelation of debt and that is through insolvency. You can be partially or completely insolvent and which will reduce how much of the cancelation of debt you need to pay taxes on.

Like many others I'm crossing my fingers the act is extended so we don't need to deal with the insolvency clause.