Short sale relief at risk?
WASHINGTON – Oct. 12, 2012 – Short sales are growing in popularity, but that may soon change. The “Mortgage Forgiveness Debt Relief Act and Debt Cancellation” is expiring at the end of the year, which could make more homeowners think twice about doing a short sale, CNBC reporter Diana Olick reports. Debt forgiveness with short sales is taxable. If a bank forgives, for example, $20,000 in mortgage debt by approving a short sale, that $20,000 is generally considered taxable income to the short-sell homeowner. In 2007, however, Congress passed a law that temporarily relieved that tax burden on mortgage debt that is forgiven as part of a short sale. Many real estate professionals “believe if the legislation is not extended, households who are already struggling to pay their mortgages will be further burdened with tens of thousands of dollars in additional taxes that they probably can’t afford to pay because the IRS would count the cancelled debt as income,” says Jamie Gregory, a lobbyist for the National Association of Realtors® (NAR). However, the tax benefit could get extended. The Senate Finance Committee passed a package that included several tax extensions recently, including a one-year mortgage relief extension. The House of Representative is still weighing how to handle the tax extensions, however. Since the forgiveness currently applies to home sales in 2012 – and Americans pay their 2012 taxes during the first few months of 2013 – the income tax hit would not be felt until U.S. residents fill out their taxes in 2014. Congress could, in theory, pass a law in 2013 that continues the tax forgiveness. If the president signs the law, the problem – depending on the details within a signed bill – could go away. NAR has closely tracked the issue. The national association plans to issue a Call for Action and ask Realtors to call their personal lawmakers if it becomes necessary. NAR calls it “an urgent priority during the expected ‘lame duck’ session of Congress following the election in November.” In the first quarter of 2012, more than a quarter of a million short sales were completed, according to RealtyTrac. Some analysts speculate that short sales will increase this fall as borrowers and banks rush to complete them before the expiration of the mortgage debt relief act. Source: “Housing Alert: Short Sales May be in Big Trouble,” CNBC (Sept. 28, 2012) © Copyright 2012 INFORMATION, INC. Bethesda, MD (301) 215-4688