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Documentary Stamp Tax due in Short Sale - More Information to Consider
Posted by: Marlyn Wiener
August 15, 2008
Topic: Short Sales
To use a simple example - if the mortgage balance is $200,000 and the purchase price is $150,000 and $50,000 of mortgage debt is forgiven - documentary stamp tax will be due on $200,000 (purchase price of $150,000 plus $50,000 of forgiven debt). In this simple example documentary stamp tax is due on an amount equal to the outstanding mortgage balance. Please be aware that this may not always be the result. If the lender is not forgiving the difference between the mortgage debt and the purchase price (i.e. seller required to sign new note for the difference) the calculation would be different.
Clearly, it is important to pay careful attention to the calculation of documentary stamp tax liability in connection with short sales.
The payment of doc stamps on the purchase price and forgiven debt may also raise an issue when it comes to establishing value for real estate taxes. County Property Appraisers may consider the amount of doc stamps paid in connection with a transaction in establishing taxable value. A value based on the doc stamps paid may well be higher than a value based on the purchase price paid.
