Here’s a great thing for people dealing with distressed real estate. When doing a short sale, modification, short payoff or a foreclosure on a principal residence, people are concerned about the tax implications. If a bank forgives debt, like in a short sale, the bank is cutting you a break, but the IRS is not. They consider debt forgiveness as income and they require that you pay income tax on the amount the bank forgives. It’s really a double whammy for people. An exception was previously made by Congress, but it had to renew the exception each year. Fortunately, it has been extended again, this time until 2025. So, for the next five years, and subject to confirmation by a knowledgeable CPA, home owners should be able to breath more easily about their tax burden in distressed principal residence real estate situations.
