I got many clients that call me

I got many clients that call me wishing to short sell their investment properties, they may be generally worried about the tax legal responsibility of a short sale- AKA owing the IRS on money the particular investor never made. As most involving you know, if the home is your key residence- the Debt cancellation canadian real estate investment Act associated with Congress protects the homeowner. Basically- the Lender will send a 1099 G for their loss in the property (which in turn shows the homeowner along with the gain as extra income- though this is phantom income)- as a major residence, the IRS has you form that cancels this phantom income. However, as an investor- this kind of cancellation of debt doesn't are present. What are your options as an investor, battling a property and losing money everyday?

Merely have an investor client, these are the steps I suggest they take:

1 . Find your current loan documents- see if your loan provider has the right to sue you for any insufficiencies or just take the property

2 . Inside the loan documents- check if it is a non-recourse loan (CANCELLATION OF INDEBTEDNESS "EUR IRS- IRC SECTIONS 108 AND 1017), non- recourse loans usually are not taxable

3. Talk to your tax accountant- the tax accountant I chatted with Randy Kiesel, Chandler AZ- stated that at the time of the short sale if the owner can prove technical insolvency- there is no tax liability (See additional explanation of insolvency below)

5. Analyze the percentage of loss- when you have lost over 15% in value- I suggest my clients think about trading the property

5. Determine whether you can purchase inside 2 years for LESS than the amount you owe at the property. Calculate 3% increases for the next two years. (I am being easygoing in allowing for value increases within the next two years)

6. Make your decision- if you can sell with no tax responsibility, in my opinion it is a good option. Start clean with new investment properties at the fresh low market prices of homes.


 * Remember, short sales require a proven hardship- you can no longer afford the property, health-related issues, divorce, etc.

So what can be technical insolvency- showing that your arrears are more than the fair market value of your respective assets. This must be proven during short sale. In today's real estate market, if you personally own several properties, it is probably an easy task to show debts higher than assets.

Many Arizona homeowners lost 25-50% of value on their homes, this of course would not exclude investors. Investors, I suggest you consult with your tax accountant and determine if you will have any tax liability. Probably would not it be a better option to market now, cut your losses as well as purchase at the reduced prices over the following 2 years?