Take Action! Tell congress to extend the real estate tax provision
If action is not taken soon, short sales could become even more difficult to complete next year. At the end of 2012, a tax break to families whose homes have lost value and are underwater could prove more difficult to sell without action from Congress.
At issue is a 2007 temporary law that exempts families from paying taxes on owner occupied homes for mortgage debt that was forgiven by the lender in a short sale or foreclosure. Prior to 2007, any mortgage debt forgiven required the seller to pay taxes as if that debt forgiven was ordinary income.
Home sellers in distressed situations are selling for a reason – they don’t have the money to pay their mortgage and are underwater. So they opt for a short sale or in drastic situations are foreclosed upon. They don’t have the money to pay the taxes and thus are saddled with more debt to the Internal Revenue Service (IRS).
Already real estate transactions, including loan modifications, short sales and foreclosures, are in the pipeline and may not be able to close before year-end. If owners are unable to close these transactions, and if Congress does not act, these owners and sellers will not receive the benefit of tax relief provisions they have relied on.
Why is this important?
• Homeowners shouldn’t be forced to pay tax on money they’ve already lost with cash they never received – and never will receive.
• More than 20% of current homeowners with a mortgage owe more on their homes than the current fair market value.
• Transactions not completed by year-end could become taxable in 2013, despite a borrower’s reliance on this tax relief.
• The housing market, while recovering, is still fragile enough that this tax relief will be needed in 2013 and possibly beyond.
Click here to tell Congress to extend this important real estate tax provision.
For more information on the Mortgage Debt Cancellation Act, click here.