Check out the article in today's LA Times here: http://www.latimes.com/business/realestate/la-fi-harney-20120812,0,7914990.story
The Mortgage Forgiveness Debt Relief Act may be extended if the bi-partisan Senate Finance Committee is successful with getting their bill through the Senate and House. The impact of a change like this means that homeowners currently in the process of or considering a short sale for a primary residence could have the tax liability of their forgiven amounts also forgiven, because the legislation amends the tax code. In simple terms: If you owe $300K on your mortgage and as part of a short sale a $100K deficiency (difference between the amount owed & the bank payoff) resulted, that $100K, considered taxable "personal income", would also be forgiven.
Other rules apply:
- Property must be a primary residence
- The loan(s) on the house have to have been obtained to purchase the home (called "purchase money"); no home equity lines or "cash out" refi's
- Forgiveness for up to $2M if married, filing jointly, or $1M filing separately
Many who had been considering short sales, but stopped due to time constraints of the laws coming expiration date on 12/31/12, may be in luck if the law is extended. This is really huge for homeowners looking to avoid the large double-whammy with the subsequent tax bill after completing a short sale.
If you would like me to keep you posted on the progress of this bill, please contact me and I'll do it!
Have a safe & happy Labor Day weekend!!