What happens when you got the $7500 tax credit and then you end up selling your home in a short sle? Is that credit or loan considered a 2nd lien? Thx

Asked by Short Sale Lady, Tucson, AZ Thu Jun 23, 2011

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Michael Emery, , Minneapolis, MN
Thu Jun 23, 2011
If you accepted the 2008 credit and you sell your home to an unrelated person, you are only liable to repay the credit up to the amount of the gain. When calculating gain or loss, you reduce your basis by any remaining balance of the credit.

My guess is the loss in a short sale would easily exceed the balance of the $7,500.

If you lose your home to foreclosure, the debt is wiped out entirely.

As always, consult a tax professional for your specific situation. See link to attributed IRS site.
1 vote
Eddie Holmes, Agent, Tucson, AZ
Fri May 25, 2012
Everyone situation is different depending on year purchased, any gains on the property, short sale or foreclosure. You should contact a tax professional to find out what is best for your scenario. Good luck and please let me know if I can be of further assistance.

Eddie Holmes, Broker
0 votes
jerimiah tay…, Agent, Tucson, AZ
Mon Jan 9, 2012
We've had several clients with this same question and their CPAS have told them that if there is no gain there is no repayment, but I'd double check with a CPA and a tax attorney to confirm.
0 votes
Eseosa Ela…, Agent, Tucson, AZ
Sat Jun 25, 2011
I highly recommend that you consult with a tax accountant or CPA. If you don't have a tax accountant/CPA and don't know where to go, please contact me.

Good Luck,
Eseosa Elaiho
0 votes
Jose Dias, Agent, Scottsdale, AZ
Fri Jun 24, 2011
My suggestion is to go to the authoritative source - the IRS. Here is a link to the information on their website - http://www.irs.gov/taxtopics/tc611.html

If you read the document you will notice the following:

1 - the taxpayer is required to pay this no-interest loan over a period of 15 years.

2 - if there is a sale of the property (they call it conversion) the owner is required to pay the balance of the no-interest loan up to the amount gained on the sale. In this case, because it was a short sale, the owner probably did not gain anything with the sale. So he would not have to repay the balance. However he is still liable for the payments (see 1 above) during the period that he owed the property.

This is a very basic interpretation. I suggest he talks with his tax advisor.

Good luck!

Jose Dias, REALTOR
(623) 418-5700
Realty One Scottsdale
0 votes
Spirit Messi…, Agent, Tucson, AZ
Thu Jun 23, 2011
Great question for an Accountant, as a Realtor this is out of my realm of knowledge. I encourage my clients to speak with attorneys for legal questions, CPA for tax questions, & etc.
0 votes
Bill Parker,…, , Scottsdale, AZ
Thu Jun 23, 2011
Hello Short Sale Lady:

I agree with what Michael said regarding the credit only being re-captured by the IRS to the amount of gain, which most likely will not exist with a Short Sale.

To your second question: No, it is not a second lien. The credit and the recapture of it are between the homebuyer and the IRS. It was not part of the closing documents when the homebuyer bought the home, and it is not part of the selling documents upon disposition.

If you need help from a good practicing CPA in Tucson, let me know and I can get you names.

Bill Parker, Loan Officer
AZ Lic# 09011570
NMLS #223607
CPA--Licensed, no longer practicing

Legacy Group Lending, Inc.
15333 N. Pima Road, Suite 300
Scottsdale, AZ 85260
(O) 480-993-3080; (M) 602-565-3646; (F) 480-993-3081
EM: Bill.Parker@Legacyg.com
Website: http://www.LegacyG.com

MISSION STATEMENT: To create an unbelievably enjoyable experience for my clients, while guiding them through the most important financial transactions of their personal lives. My clients know me as their Mortgage Lender for Life. I truly appreciate your referrals.

If you think it's expensive to hire a professional to do the job, wait until you hire an amateur.
Red Adair, Oil well firefighter
0 votes
Thu Jun 23, 2011
First of all, you need to consult your tax advisor or an attorney as there arre different tax implications for different situations. We, as real estate agents, are not tax professionals so we cannot give tax advise. There is a time frame in which if you sell your home you may have to pay some or all of the tax credit back. I am not certain how this applies when you add the complication of a short sale into the mix so this truly is a question best asked to a tax professional.

Jack Murray
Long Realty - Tucson, AZ
0 votes
Donna Moulton, Agent, Tucson, AZ
Thu Jun 23, 2011
This sounds like a question for a real estate attorney and a tax consultant.
0 votes
George Szkup, , Tucson, AZ
Thu Jun 23, 2011
This is a question for Tax Accountant or real estate attorney - not for a realtor.
George in Tucson
0 votes
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