Good news, the housing market, for the time being, is on slightly firmer ground now that two major tax provisions were extended as part of the fiscal cliff negotiations. One of them, the Mortgage Debt Relief Act, expired on December 31, 2012 but it has now been extended for another year, exempting those who are in a short sale situation or worse, foreclosure, from having to pay federal taxes on the balance of their mortgage (no bueno).
The act was passed in 2007, right around the time the mortgage and housing crisis started. It was set up to relieve people that if the lender took a deficiency, say or short sale where they ended up taking less money for the payoff of that loan, it allowed people to not recognize that as income.
The fear was, if the act wasn't extended, that homeowners would choose bankruptcy rather than work out a deal with their lender.
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With the extension, you can conceivably get out of your home with a short sale or if there was even a foreclosure and not pay the tax on the amount owed which is typically treated as a taxable gain. It's not as simple as just forgetting about it. There's a little work involved when filing your taxes. However, one form will take care of it.
This is also good news for Homebuyers too. Typically, short sales sell for less than market value which is great for first time or budget conscious homebuyers. The main reason for this is that the process can be frustrating because buyers and their agents have no control over the banks decision but for those who are committed they usually purchase a home at 95% of market value.
Find out what's happening in Alamedawith free, real-time updates from Patch.
If you are struggling or would like additional information regarding the mortgage debt relief act and the short sale process, please free to email me or call.
IRS website has not updated the extension yet but you can read the details here:
http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-...
Happy New Year!
John-Michael Kyono
East Bay Sotheby's Realty
Alameda Victorians
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