UPDATE: Today it was decide that REET does not apply to Short Sales. THANK GOODNESS!
Washington Realtors Association sent out a notice to it’s members this morning, saying that “The Department of Revenue (DOR) recently sent a letter to the Escrow Association explaining its position that in short sales, the Real Estate Excise Tax (REET) applies not only to the selling price of a home, but also any debt forgiven by the seller’s lender.”
Of course, this is total crap. Why should you pay taxes on a price the market wouldn’t bear out? NWMLS broke it down like this:
For example, if a seller owes $350,000 on its mortgage, the property sells for $300,000, and the lender agrees to forgive the remaining $50,000 in debt (i.e. the seller will not be held liable for the $50,000 difference) – there are tax implications for the seller related to the $50,000 debt forgiveness.
The seller is already potentially having to report that $50k that the bank forgave as income, now the state is saying they must also pay excise tax on that?
Realtors are not allowed (by law) to give tax or legal advice in this situation. If you are selling your home in a Short Sale, make sure to talk to a Real Estate Attorney and a CPA.
