Great news for sellers wanting to short sale their homes! The Debt Forgiveness Relief is going to be extended. It is expected that we will see more short sales continuing to come on the market with this act passed. See below for more details.
The American Taxpayer Relief Act of 2012 was passed late in the evening on January 1st and is expected to be signed by President Obama. While much of this contentious Bill was disappointing to all and, in effect, kicked the can down the road for more negotiations in the months to come, reading through the Act reveals a blessing for upside-down homeowners.
When a homeowner experiences a debt reduction through mortgage principal forgiveness – such as through short sale, foreclosure, or even loan modification – the amount of debt forgiven is considered taxable income. In 2007, Congress passed the 2007 Debt Forgiveness Relief Act which exempted up to $2 million of debt forgiven on the homeowner’s principal residence as long as the debt was used to buy, build, or substantially improve their principal residence and be secured by that residence. The Debt Forgiveness Relief Act has been an incredibly valuable tool in helping our nation’s real estate industry recover. However, the Act which was passed in 2007 had a 5-year sunset provision and was set to expire on December 31, 2012. The American Taxpayer Relief Act of 2012 extended the sunset provision until Jan. 1, 2014.
For the real estate industry and for upside down owners, especially those with short sales pending, they can now breathe a sigh of relief knowing that they won’t get slammed with taxes and they can move on with their lives.
All indications are that we still have a long way to go to complete the resolution of the mess caused by the housing collapse. But conditions are improving. The low inventory of properties for sale is causing price increases in many markets and, for the first time in many years, equity sales, i.e.: sales where the sellers actually receive some money, represent more than 50% of the market.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan, especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.