Do you all know about the Mortgage Cancellation Tax Relief Act, H.R. 3648? You can see NAR's approval of such a bill here.
This bill was enacted to help homeowners that sell their homes via a Short Sale from getting a 1099 tax bill for the loan forgiveness.
- A home is bought for $400,000 in 2005.
- The loan amount is currently $390,000
- Home can't sell for break even
- THe home is listed as a short sale for $340,000
- If the banks approve this price, they lose $50,000
- The bank is required to 1099 the owner for that $50,000
- Owner has to pay taxes on that $50,000 also known as "Phantom Tax"
This bill in theory sounds great!
But the problem is, if there is NO ramification for a seller to do a Short Sale, or fight for a higher price, the result is MORE Short Sales for LOWER prices.
This affects everyone, as home prices will fall futher! (making it worse for others facing foreclosure or short sales)
I suggest instead of wiping out the tax, reduce it, or spread it over 5 years. Why not reduce the burden by 50% or 75% or spread it out over 5 years?
-Written by Frank Borges LL0SA FranklyRealty.com
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