2013: The ‘Year of the Short Sale.’ – Mortgage Forgiveness Relief Act Extends

Fiscal Cliff Jump

Fiscal Cliff Jump

Take that big sigh of relief now that we know what was to happen to the Mortgage Forgiveness Debt Relief Act.  As of a couple days ago, we had no idea what was going to happen (well, most of us didn’t, that is…).  The Mortgage Forgiveness Debt Relief Act of 2007 provided for relief from being taxed on the forgiven debt.

Typically speaking, without this act in place, seller’s that sell for less than is owed (short sale) on their home, are subject to adding that dollar amount difference to their taxable income.  This Act that has helped to give a little spark to the real estate market, and has certainly helped millions of underwater homeowners, was set to expire on December 31, 2012.

But, wait for it…wait some more…ok, yes, it has been extended by congress for 1 additional year.    Just yesterday, congress passed the ‘revised’ HR-8 into legislation yesterday.  A part of that revision to HR-8 was that the Mortgage Forgiveness Debt Relief Act was to remain in affect until the end of 2013.

This means that for one more year homeowners that are underwater, and that are in a position to short sell their home, and that actually do, will not be taxed on that difference between the home is sold for and what was owed to the lender(s).  Of course, like anything, there are other restrictions to this, but there are also other options and alternatives to this Act’s relief.  For a full breakdown of this Act, refer to this page.

The next 2 important questions become:

  1. Will the State of California extend it’s similar relief act’s expiration to the same as what the HR-8 did?  There is no specific information released as of this moment about such.  Let my hunt begin.  (Look for an update to this post once I have the info). 
  2. Will congress extend the Act past the new expiration date of December 31, 2013?  My take is ‘no.’  I guess we’ll be back to this same guessing game in about 354 days.  But think about how much revenue the Internal Revenue Service is “missing out on.”  There’s more to it than that, surely, so we will see.  

 We are not tax experts or qualified to advise on tax codes.  Information on this page is provided for informational purposes only.  We advise you confirm the information provided herein with a tax professional.  We advise you consult with a tax professional before considering a short sale or any other voluntary or involuntary transfer of real estate.

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The information contained herein has been provided by San Diego Board of REALTORS®. This information is from sources deemed reliable but not guaranteed by San Diego Board of REALTORS®. The information is for consumers' personal, non-commerical use, and may not be used for any purpose other than identifying properties which consumers may be interested in purchasing.

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