While the majority of conversations surrounding the fiscal Cliff are about tax increases and spending, the impact it will have on home owners looking to do a short sale is significant. It is estimated that there will be nearly 350,000 short sales in 2013. The Congressional Budget Office estimates that this amounts $1.3 Billion Dollars of taxes that will need to be paid by home owners that do a short sale, if nothing is done.
The particular piece of legislation that needs to be extended to stave off this massive tax hike for distressed home owners is The Mortgage Forgiveness Debt Relief Act. This Act enables homeowners to avoid paying taxes on income (in the form of written off debt) that results from doing a short sale. For Example if you purchased a home for $150k and complete a short sale for $90k, the difference is $60k. Under the current legislation the $60k would not count as income and would be forgiven by the IRS. If it is not extend, a home owner would have to pay taxes on the $60k as income.
Several politicians have stated they are confident there will be an extension in Wall Street Journal and other publications, but the problem is the timing. The ‘unknown’ nature of the where things stand is nerve racking for home owners and realtors that are actively negotiating short sales that may close in early 2013. For more information about doing a short sale or general information about working with a quality real estate professional visit http://BTRealtyGroup.com or call 617-674-2077.
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