Hi, Stars -

First off, I understand that it's likely that none of us are CPAs or are qualified to give tax advice; that said, I have a potential seller who abandoned her primary residence perhaps a year ago and hasn't had anyone living there since.  Does anyone have experience with this in relation to the Mortgage Debt Relief Act?  Would she be eligible for tax relief on this property?

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I am not a CPA.  My understanding (I've had CPAs tell me this) is the IRS definition of owner occupied property is that the taxpayer must have lived there 2 out of the last 5 years.  

I would double check this though.....

I know that's the definition for capital gains; I wonder if it's also true for the MDRA?  In any event, thanks for the info!

ALEX.

She abandoned the property so she does not qualify.  At least that's how it is here in Michigan. I had a similar situation with a client.Not and attorney nor a CPA just telling you what happened in my case.

Hi Alex. Here's some info that may help.

http://apps.irs.gov/app/vita/content/36/36_03_010.jsp

http://www.irs.gov/pub/irs-pdf/p4681.pdf

they should definitely seek advice form a competent tax pro. Just remember for the Debt Relief Act it's the loan that needs to qualify.

Main Home

This section explains the term “main home.” Usually, the home you live in most of the time is your main home and can be a:

  • House,

  • Houseboat,

  • Mobile home,

  • Cooperative apartment, or

  • Condominium.

To exclude gain under the rules in this publication, you in most cases must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale.

My understanding is that as long as 1) it WAS the principal residence, and 2) it was not used for any other purpose after it was the primary residence, it qualifies. It doesn't have to be Current residence and I don't believe the 2 out of 5 years applies as it does to the capital gains tax exclusion. Just a Realtor, Not a CPA or any other type of qualified individual.

Bryant,  good resource link!  At the link, scroll to next page and it verifies house qualifies as long it hasn't been used for rental or biz.  It doesn't have to be currently occupied as primary residence.

Well now you have me thinking.  Our current home, which we may or may not keep or sell short is our primary residence UNTIL we get approved for the offer we have made on a different property short sale.  I was very happy about the Debt Relief extension.

Our current home is in a golf resort!  We rent our Guest House (not the main house) on a weekend, for an annual event here called Coachella Festival.  Rock bands from everywhere come here, and we do rent our Casita.  I even cook breakfast for these kids that come and stay!  But we don't leave.  The casita is already booked for 2013 Coachella!

Does this mess up the option to sell short, if we decide to do so?

Thanks!

Definitely talk to a CPA, but it seems that since it WAS your primary home at the time you financed it, it would qualify, as long as you don't turn the whole property into a rental.  Renting part of it seems to make it trickier.

Susan, Since you are buying another home now it could hurt you.  You would have to show valid hardship (and supporting financials) at time of short sale review (and likely again when offer presented) to support the case for a short sale. You would have to include in your documentations earnings from rent from it as well as last 2 years of tax returns (all pages) and all assets and financial documents. You can certainly short sale rentals and investment properties - and ones that are P/T rentals (but they may not qualify for tax relief though on deficiency- would need to see a CPA). It all depends on when you sell and your financial situation (how the balance sheet looks) and your hardship then.  You will need to explain why you had to buy your new home and can not afford payments on your current home.

Those are great reference links - thanks as always, Bryant! 

Google is our friend :)

What is this Google thing everyone keeps talking about? :)

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