Good job at being a code geek! If you read sec. 2 of HR 3648, sub section (h) specifically refers to IRC 121 in for the definition of principal residence. There is no ambiguity here. However if you look at IRS pub 4681 pages 7&8, it is ambiguous which leads to the confusion, (trick devils!). This is probably the source of your current CPA’s position as well. So… provided you meet the 2 of 5 year requirement by the time funds hit escrow you should be good. If you are on the edge you may want to spend your time in Florida until the house sells. This may actually help your ability to sell as well.

Michael

I think you’ve hit the nail on the head. The confusion I’m running into is the difference between COD income exclusion and capital gain exclusion. This transaction would be a nondeductible loss for me, so capital gains in not an issue. My question is on the COD exclusion (1099-C amount). I think it boils down to the definition of ‘principal residence’. HR 3648 says principal residence has the same meaning as used in Section 121. Does that mean one could exclude COD income on a property that was a primary residence (or main home) in the “majority of the time” (for a calendar year) sense or in the “2 of 5 years” sense? Remember, I’m not referring to the capital gain exclusion, but only to the COD income exclusion. If it’s the “majority of the time”, then would an abandoned home apply if the foreclosure auction (or shortsale) happened in a period outside of that 6 mo. plus one day timeframe subsequent to the abandonment?

I look forward to your reply. Again, I’d very much appreciate guidance reference for your response.

Thanks for your reply. I think you’re hitting the nail on the head. I think the confusion I’m running up against is in the difference between Debt Forgiveness (COD)INCOME exclusion vs. capital gain exclusion. I’m not looking at capital gains at all as it would be a nondeductible loss for me. I’m looking for the best, most conservative definition of primary residence, principal residence, main home, whatever term the IRS uses – seems they’re used interchangably. HR 3648 says it’s the same meaning used in section 121. Does that mean one would be able to exclude COD from income (by submitting Form 982) (1099-C) if it were for a house that was a principal residence in the “where you spend most of your time” (in the calendar year) sense, or in the “two out of five years” sense? Remember I’m not referring to capital gains.

I look forward to your response. And again, if you were able to provide guidance reference, I’d very much appreciate it.

Michael White

Therefore, please ask your attorney.

My understanding is that while the property is in your name with homestead exemption, it is regarded as your primary residence.

Seems to me the property you’re asking about is (was) a primary.

Please let me know what your (an) attorney says.

I try to post updated foreclosure prevention information @ Sarasota Real Estate | Sarasota Foreclosures

Mike

Thanks.

Does ‘owner occupied’ mean owner occupied at the time the sale closes? What if I moved away from my principal residence and it was many months before the short sale or auction sale took place? Please let me know where I can find guidance on your reply.

Thanks.

Primary vs “investment” is important distinction – totally different rules/strategies apply.

Regarding buying again, Fannie Mae has revised guidelines for buying after short sale, deed in lieu or foreclosure:

**Look at the down payment requirements**

Fannie Mae issues changes the Waiting Period After a Short-Sale or Deed-in-Lieu of Foreclosure:

* Deed-In-Lieu of Foreclosure
o Current waiting period – 4 years with additional requirements after 4 years for up to 7 years
o New waiting period – 2 years for 80 percent LTV (loan to value) mortgage, 4 years for 90 percent LTV and 7 years for higher LTV’s
* Short-Sale
o Current waiting period – 2 years
o New waiting period – 2 years for 80 percent LTV (loan to value) mortgage, 4 years for 90 percent LTV and 7 years for higher LTV’s

With “extenuating circumstances” that caused the need for the short-sale or deed-in-lieu, different guidelines apply according to Fannie Mae:

* Deed-In-Lieu of Foreclosure
o Current waiting period – 2 years with additional requirements after 2 years for up to 7 years
o New waiting period – 2 years for 00 percent LTV (loan to value) mortgage.
* Short-Sale
o Current waiting period – same as above, no exceptions currently.
o New waiting period – 2 years for 90 percent LTV (loan to value) mortgage.