What is the Connecticut Real Estate Conveyance Tax?

What is a real estate conveyance tax?

A real estate conveyance tax is a tax paid by the “Transferor” in a real estate transaction, typically this is a Seller. However, there are some clever Sellers that put the burden of paying the conveyance tax on the Buyer in the real estate purchase and sale contract. The conveyance tax is paid BOTH to the State of Connecticut as well as to the municipality in which the property is located. The real estate conveyance tax MUST be paid to the Town Clerk (note: not the tax collector) at the time that the Deed transferring title is recorded on the land records. You must also present a completed  and signed OP-236 – Connecticut Real Estate Conveyance Tax Return. A fillable online version is available here.

How much is the real estate conveyance tax in Connecticut?

The amount of the conveyance tax is dependent on the value of the real estate property being conveyed. In Connecticut, the real estate conveyance tax is .0075 of every dollar to the State (thts 3/4 of 1%) and .0050 of every dollar to the local municipality (that’s 1/2 of 1%).

If a home sells for $200,000.00, the Seller will have to pay $1,500.00 to the State of Connecticut, and $1,000.00 to the Town.

Are there any exceptions to the Connecticut Real Estate Conveyance Tax?

There are 22 exceptions that are noted on the back of the instructions to the return. The most commonly used are conveyances between spouses, conveyance due to foreclosure, and conveyance for little or no consideration.

Short Sale Debt Forgiveness Tax Relief

Tax Relief for Short Sale Debt Forgiveness

Short Sale Tax Relief

Exemption for Tax Liability Created by Short Sale Debt Forgiveness

The Budget Bill signed into law by President Obama on December 18th, 2015, has received a lot of coverage in the news for many reasons. One of the good thing hidden in the Bill is that The Mortgage Forgiveness Debt Relief Act, which had expired in 2014, has been retroactively extended through 2016. Let’s take a look at why further relief is necessary when debt is forgiven through short sale.

Debt Forgiveness is a Taxable Event

In this world, very few people are strangers to debt. Whether it is unsecured debt such as credit cards or student loans, or secured debt such as a mortgage on real estate property or car loan, almost everybody owes somebody else money. However, lenders do not always successfully collect debts owed to them. In these cases, the lender may elect to cancel all or part of the debt of the borrower.

With unsecured debt, the lender might not be able to collect the debt or may simply give up on trying to collect. With secured debt, the lender will usually chose to foreclose or repossess the property, or allow a short sale as discussed below.

What many people do not know, is that the forgiveness, discharge or cancellation of debt (whichever term you chose to use), is generally a taxable event. The IRS expects people to pay taxes on the difference between the amount they owed and the amount they actually paid. How does the IRS know? Because the lender is required by Federal Law to file Form 1099-C “Cancellation of Debt”, for any debt forgiveness greater than $600. the 1099-C contains pertinent information such as the borrower and lender identification, amount of debt forgiven and date of discharge. you are then required to show the amount of forgiven debt as income on Form 982 and submitted with your Form 1040 “Income Tax Return”.

How Does Debt Forgiveness Tax Impact Short Sale?

In a Short Sale, the lender allows the property owner and borrower to sell the property for less than they owe, and forgive the remainder of the debt, in an attempt to save themselves the time and cost of foreclosure and property maintenance. Technically, this debt forgiveness would be a taxable event as discussed above.

However, The Mortgage Forgiveness Debt Relief Act shields homeowners from tax liabilities created by mortgage debt that is forgiven due to Short Sale of a principal residence (as well as debt forgiven through mortgage modification or deed in lieu of foreclosure). Up to $2,000,000 of forgiven debt is eligible for tax exclusion.

Is Tax Relief for Short Sale Debt Forgiveness Fair?

Whether the forgiveness is fair or not is up for debate, but it definitely makes sense. People seeking Short Sale to avoid foreclosure do not have the money to pay their mortgage. How can the IRS expect the borrower to pay taxes on money they couldn’t pay? With the great number of financially distressed properties in this housing bubble, they can’t.

Consult a Professional

You need to make sure you are making use of the right professionals so that you do not pay the price at a later date. Your account should be consulted whenever a large scale taxable event occurs; such as the forgiveness of thousands of dollars or more in debt. They will need this information to accurately file your tax return. Your real estate attorney needs to make sure that the lender provides you with a 1099-C that is complete and accurate. Finally, you need to make sure that your team is communicating and exchanging information efficiently.

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Short Sale Impact On Homeowners Credit Score

The Impact of Short Sale on the Credit Score of the Homeowner

What is the impact of short sale on the credit score of the homeowner?

When a homeowner cannot make their mortgage payments, for whatever their personal reason is, and they have no equity in the property they have two options: foreclosure, short sale, or bankruptcy. While losing your home may be stressful, most clients are more worried about the future: when will they be able to buy a home again?

Sadly, all three of the above options will have a negative impact on the homeowner’s credit score. Let’s take a look at the options:

  1. Foreclosure – By the time the lender files for foreclosure, you have missed two, four, six, maybe more payments. The foreclosure process can last a year or more, by which time you have missed 12 or more additional payments. When the judgment of foreclosure is entered, you may be responsible for additional costs, or in extreme cases the difference between the foreclosure sale price of the property and the amount of the mortgage. Then a foreclosure is added to your credit report and your credit score drops further.
  2. Bankruptcy – May allow you to keep some of your property, maybe even your home if you have enough other assets, but it will essentially strip you of everything you are worth to pay off your creditors. A bankruptcy is also one of the most devastating negative marks you can get on your credit report.
  3. Short Sale – By entering into a short sale agreement, you can stop the negative impact of missed payments as soon as you know a problem exists. You can even file for short sale without missing any payments – something most lenders won’t tell you! While some lenders may report short sales to credit bureaus, the credit score impact of a short sale is for less than that of a foreclosure or bankruptcy.

Since Short Sale has a smaller impact on your credit score, and can save the additional missed payments that come with foreclosure or bankruptcy, the overall impact on credit is much lower. Therefore, credit scores will recover much faster after a short sale. Short Sale is not always the better choice, but all things being equal, it is almost always the lesser of three evils.

The option of short sale is available to homeowners at almost any time! If you owe more than your house is worth, it may be the right option for you.