Wait until 2013 and selling your home with a short sale will cost you.
With current tax laws on Short sales set to expire at the end of the year, waiting until January of 2013 could cost you a bundle.
Under the current tax law enacted in 2007, you can do a Short sale on your home and not be required to pay taxes on the banks loss when you sell the property. The law allows the lender to send you a 1099 for whatever money they lose on the short sale or foreclosure of your loan. But it does not require you to pay taxes on that loss which is considered income to the seller.
In January 2013 you will be required to pay tax on the loss. So if you wait until then and you short sell your home for $200,000 and the lender takes a $40,000 loss on the sale; you will need to pay taxes on the amount of the loss which depending on your tax bracket, it can cost you tens of thousands of dollars.
January 2013 is months away, but don’t think that there is plenty of time for you to do a short sale of your home. Remember that short sales take 30 to 60 days longer than a traditional sale and the average number of days it takes to sell a home is 109. Do the math and that comes between 5 and 6 months, and if you snooze; you lose!