An Expiring Tax Break on Home Short Sales
Short sales take an average of four months to close. Uncle Sam's generosity expires at year's end.
Congress did troubled homeowners a big favor in 2007 when it allowed them to exclude from taxable income any mortgage debt written off by their lenders in a loan modification or short sale (selling the home for less than the mortgage balance, with the lender agreeing to take the loss). But the exclusion expires at year-end, unless Congress extends it. If you're headed for a short sale and don't want to risk losing Uncle Sam's generosity, it's best to get started.
SEE OUR SPECIAL REPORT: Buying and Selling a Home in 2012
RealtyTrac, a real estate data firm, expects a record number of such sales this year, as lenders and loan servicers, who lose less money on short sales than on foreclosures, step up approvals. But short sales still take an average of four months to close. Speed up the process by gathering documents—pay stubs, bank statements, tax returns and a letter explaining why the amount you owe should be adjusted—in advance, says Scott Fuller, a San Francisco real estate agent who specializes in short sales. Hire a specialist to list your home.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
In January, two of Fuller’s clients, Lauren Predmore and Jason Webb, closed on the short sale of their home in pricey Walnut Creek, Cal. Webb had purchased the half-acre property in 2007. His loans totaled $650,000, but the bank agreed to accept the $390,000 proceeds of the sale as payment in full. The bank's roughly quarter-million-dollar loss still haunts him. But at least he won't be taxed on it.
-
How to Plan a Microvacation That Actually Feels RestfulHow a simple long weekend can boost your mood, reduce stress and make winter feel shorter.
-
We're retired and fight more than ever. Should we take a break?Can taking a break save a marriage? We asked professional relationship therapists for advice.
-
Turning 59½: 5 Planning Moves Most Pre-Retirees OverlookAge 59½ isn't just when you can access your retirement savings tax-free. It also signals the start of retirement planning opportunities you shouldn't miss.
-
3 Major Changes to the Charitable Deduction for 2026Tax Breaks About 144 million Americans might qualify for the 2026 universal charity deduction, while high earners face new IRS limits. Here's what to know.
-
Retirees in These 7 States Could Pay Less Property Taxes Next YearState Taxes Retirement property tax bills could be up to 65% cheaper for some older adults in 2026. Do you qualify?
-
Estate Tax Quiz: Can You Pass the Test on the 40% Federal Rate?Quiz How well do you know the new 2026 IRS rules for wealth transfer and the specific tax brackets that affect your heirs? Let's find out!
-
5 Types of Gifts the IRS Won’t Tax: Even If They’re BigGift Tax Several categories of gifts don’t count toward annual gift tax limits. Here's what you need to know.
-
The 'Scrooge' Strategy: How to Turn Your Old Junk Into a Tax DeductionTax Deductions We break down the IRS rules for non-cash charitable contributions. Plus, here's a handy checklist before you donate to charity this year.
-
Tax Refund Alert: House GOP Predicts 'Average' $1,000 Payouts in 2026Tax Refunds Here's how the IRS tax refund outlook for 2026 is changing and what steps you can take now to prepare.
-
New IRS Changes to FSA Contribution Limits for 2026: What to KnowHealth Care Flexible Spending Accounts have tax advantages worth looking into, especially in light of new IRS changes.
-
Is a New $25,000 Health Care Tax Deduction Coming in 2026?Tax Policy A proposal from GOP Sen. Josh Hawley adds to the chatter about health care affordability.
