This message is directed primarily for investors who got caught in the real estate bubble and are currently upside down in their investments. Some of you may be familiar with the 1031 exchange, otherwise known as a tax deferred exchange. It is basically a strategy for unloading one property preceeding with an acquisition of another property of equal or lesser value. This typically refers to primary residences only; however, there is also a similar method, 1031 IPX Investment Property Exchange, made available specifically for investors in danger of having to foreclose on the property.
A quick review of the term short sale is the lender agreeing to release the subject property from the lien of its mortgage. since the Mortgage Forgiveness Debt Relief Act of 2007 only applies to a principal residence, any debt forgiveness with regard to an investment property will be taxable. This presents a problem to many investors because in addition to losing money on the property, the debt for which they've been forgiven becomes a tax liability.
Another more favorable option would be as previously discussed the 1031 Investment Property Exchange with the bank for another real estate owned property. By exchanging one of the properties it already owns, the seller will remain financially stable and be more likely to continue paying his mortgage obligation, which is great news for the bank! The benefit to the investor is that he will not be forced to recognized and pay taxes on "phantom income" and will be able to acquire, as his replacement property, a better property which is equal in value to his original investment.
Successfully achieving this type of transaction takes effort but it can be beneficial to investors, lenders and realtors. An investor could acquire the new property in an area which has stabilized and has a better chance of showing appreciation. Word of caution: before selling any property in a short sale, it is very important to consult with your tax advisor regarding the implications of your actions as well as with a lender to discuss loan modification programs. You need to receive competent advice as to what is best for your specific situation. Contact me or visit my website at http://www.stephanieleehomes.com/ if you'd like to speak with a specialist regarding your options for the 1031 exchange.
A quick review of the term short sale is the lender agreeing to release the subject property from the lien of its mortgage. since the Mortgage Forgiveness Debt Relief Act of 2007 only applies to a principal residence, any debt forgiveness with regard to an investment property will be taxable. This presents a problem to many investors because in addition to losing money on the property, the debt for which they've been forgiven becomes a tax liability.
Another more favorable option would be as previously discussed the 1031 Investment Property Exchange with the bank for another real estate owned property. By exchanging one of the properties it already owns, the seller will remain financially stable and be more likely to continue paying his mortgage obligation, which is great news for the bank! The benefit to the investor is that he will not be forced to recognized and pay taxes on "phantom income" and will be able to acquire, as his replacement property, a better property which is equal in value to his original investment.
Successfully achieving this type of transaction takes effort but it can be beneficial to investors, lenders and realtors. An investor could acquire the new property in an area which has stabilized and has a better chance of showing appreciation. Word of caution: before selling any property in a short sale, it is very important to consult with your tax advisor regarding the implications of your actions as well as with a lender to discuss loan modification programs. You need to receive competent advice as to what is best for your specific situation. Contact me or visit my website at http://www.stephanieleehomes.com/ if you'd like to speak with a specialist regarding your options for the 1031 exchange.
No comments:
Post a Comment