Homeowners with Foreclosures and Short Sales Could See a Tax Increase in 50 Days!
If the Debt Relief Act of 2007 is not extended, 2013 could be a very Unhappy New Year for homeowners who have foreclosures and short sales!
New headlines are warning of a financial cliff that is approaching with the end of 2012, and the real estate industry will be hit particularly hard! It’s the expiration of the Mortgage Forgiveness Debt Relief Act of 2007.
The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on Dec. 20, 2007. The Act protected homeowners from paying income taxes on the deficiency difference between what they sell their home for and what they owe. Whether the home is sold in a short sale or foreclosed upon by their lender, these distressed homeowners have been protected by the Debt Relief Act of 2007, which is set to expire on Dec. 31, 2012 unless Congress acts… quickly!
One out of every four real estate transactions involves a property that is “underwater” or “distressed”. These homeowners have been foreclosed on or are selling their homes as a short sale. In most cases, there’s a large difference between the current value/sale price and what they actually owe.
If the Mortgage Forgiveness Debt Relief Act of 2007 is not extended by Congress before the expiration on Dec. 31, 2012, these homeowners could be forced to pay income tax on the difference between what the home sold for and what they owed. This would represent a double loss as they would be paying taxes on “invisible” equity they never really received.
Stay tuned to this blog for any updates to this story.
by Judy Jones