Which is better - Short sale or Deed-in-lieu?

lvonah · Joined: 30 Jun 2008 Posts: 2 1.73 Dollars($)

I own rental properties that I got behind on due to "not so good" tenants. I have the option to do a short sale with the lender or a deed-in-lieu? Can anyone tell me which would be better for me in regards to my credit, taxes etc. Thanks

jameshogg

Hi Ivonah,

Welcome to forums.

Short sale is a better option than deed-in-lieu as far as the credit effects are concerned. Know how short sale or dil can affect your credit .

To find out which is better tax-wise, you need to give me the name of your state so that I can give further suggestions.

Thanks

Niicss · Posted: Tue Jul 01, 2008 2:33 am Post subject:

Welcome Ivonah,

Short sale will hurt your credit less than deed in lieu of foreclosure. Short sale only drops your credit score by 80 to 100 points and you can get approved for a mortgage in 18 months if you can improve your credit. By the way there are other options which can help you to avoid foreclosure. Take a look at 17 ways to protect yourself from the foreclosure trap

Let me know if you have any further queries.

Guest 0.10 Dollars($)

I live in Iowa. If I go with a short sale, how will it affect my tax liability. I am aware of the tax reform act whereas the difference owing will be forgiven, but I don't know if it apply's to rental properties. Thanks

Niicss · Posted: Tue Jul 01, 2008 6:22 am Post subject:

Welcome Lauren.

I fell you are the original poster. So why are you posting as a Guest Smile

If the debt is forgiven then you need not to pay tax on it as per the Mortgage Debt Forgiveness ACT but in case of short sale the deference is not forgiven. So you will have to pay the deficiency judgment. Talk to your lender and get it clear whether you need to pay the deficiency judgment or not?

Let me know if you have any further queries.

cliff · Posted: Tue Jul 01, 2008 5:12 pm Post subject:

sorry the Mortgage Forgiveness Debt Relief Act of 2007 does not apply to rental properties. However, a short sale is the better option because it does not have as big an affect on your credit score.

Hope this helps. Very Happy

Guest 0.10 Dollars($)

Someone said that if I can prove "Insolvency" the difference between what is being paid to the bank vs. what is actually owed could be forgiven in regards to the tax hit. Does anyone know anything about that? Thanks

cliff · Posted: Tue Jul 01, 2008 10:15 pm Post subject:

I have not heard that but here is a link you can go to and read more about Mortgage Forgiveness Debt Relief Act of 2007.

http://www.irs.gov/irs/article/0,,id=179073,00.html

Guest 0.10 Dollars($)

... can be found at 26 U.S.C. 108(a)(1)(B). Please consult with a REAL CPA to handle your taxes for the year in which you do the short sale/DIL in order to maximize your protection. I promise you-- H&R Block won't be able to help you properly!!! Smile

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