Great post from J. Phillip, a broker in New York. Congress extending the "Mortgage Forgiveness Debt Relief Act" is instrumental in continuing the positive swing in the real estate market for everyone...buyers, sellers & current homeowners.
Essentially the act forgives a homeowner/seller if the sale of their home doesn't procure enough money to pay off the remaining balance of the mortgage. This is a very common situation in short sales...(i.e. Sale Price $100k and Mortgage Balance of $125k)where the $25k loss would NOT be taxed. Traditionally this loss would be recognized by the IRS as "taxable gain", however this Act dismisses homeowners from having to pay taxes on balance that was lost...this is HUGE!
You can all exhale. The Fiscal Cliff deal passed in the wee hours of last night extended the 2007 Mortgage Forgiveness Debt Relief Act which was due to expire at midnight. According to NAR, the American Taxpayer Relief Act of 2012 passed the Senate 89-9.
There was an awful lot of concern among real estate licensees and borrowers either in or considering a short sale that the tax ramifications of a short sale would change with the expiration of the 2007 law. The extension saw to it that anyone who has purchase mortgage debt forgiven in, for example, a short sale would not have the forgiven debt treated as taxable income.
There is always small print as to what qualifies, so all are encouraged to consult with their CPA, attorney or financial professional for specific advice, but the current law will continue unchanged, and that is good news.
This had been a big distraction and concern for the bulk of 2012. I am not happy about how long it took lawmakers to get their act together on this, but that is the climate we are in. The result is a happy one.
Special thanks to Fred Glick for being on top of this and keeping his colleagues in the know.
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