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Can I Short Sell A Rental Property?

That's a simple question but it doesn't necessarily come with a simple answer. There are ways to short sale your home if you don’t live in it but it’s much, much easier if it’s not an investment property. If you can prove hardship and work out an agreement with your lender, the black-and-white answer is yes, you can short sale your rental property. The bigger, more important question is whether or not you want to do that. Selling a secondary/investment property isn't the same as selling your primary residence. With a primary residence, income doesn't necessarily have to be taxed thanks to the Mortgage Debt Relief Act of 2007. However, that doesn't apply to secondary/investment properties.

That's the most important thing to consider if you are looking at short selling your rental property. You'll most likely wind up having to pay taxes on the short sale; is that an impact you're willing to deal with? For the exact tax consequences, the best thing to do is to consult your CPA and have a complete rundown of your finances, from your rental income to your primary income.

What are your options instead of short selling? The biggest one would be to try your hardest to find a renter, even a temporary one at a discount price, just to get some relief on the payments while the market corrects itself. You can also try pleading hardship with your bank and re-negotiate the terms of your mortgage. Combine those two and you probably have the best circumstance -- temporary renters that help pay for some of the mortgage while you work out new mortgage terms, then when you have a lower monthly payment, you can look at your longer term options for renting.

Yes, you can short sale your property, but it isn't necessarily the best path to choose. Look at your options, look at your finances, and consult professionals before making a decision. You don't want to make a decision and be surprised come next year's tax season.
Israel Gonzalez RDCPro, CDPE
Real Estate Broker
www.bestreohomes.com   www.nicereohomes.com
The views published here are the opinions of the writer and are not a substitute for legal counsel.


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