It’s a Done Deal: Tax Forgiveness for Short Sales, Loan Modifications Remains In Effect Through End of 2013
Well, that didn’t take very long. Within 24 hours of the Senate’s late-night New Year’s Eve passing of the “Fiscal Cliff” bill, House Republicans caved, and passed the Senate version of the Fiscal Cliff bill, which extends the Mortgage Debt Relief Act of 2007 through the balance of 2013.
As originally reported by the National Association of Realtors, short sale agents and sellers should breath a sigh of relief due to the extension. This will extend mortgage debt forgiveness relief for home owners or sellers who have a portion of their mortgage debt forgiven by their lender, typically in a short sale, loan modification or deed in lieu transaction. Without the extension, any debt forgiven would have been taxable. For distressed households this would have added insult to injury and resulted in a large tax bill.
Fate of Tax Forgiveness for Short Sales, Loan Modifications Remains In Limbo
As reported by the National Association of Realtors, short sale agents and sellers should breath a sigh of relief, but keep their fingers crossed with respect to the fate of the Mortgage Debt Relief Act of 2007, which was set to expire as part of the pending Fiscal Cliff. The “American Taxpayer Relief Act of 2012’’ (Fiscal Cliff bill), passed by the Senate in the wee hours of December 31, 2012, extends the Mortgage Debt Relief Act through the balance of 2013. This will extend mortgage cancellation relief for home owners or sellers who have a portion of their mortgage debt forgiven by their lender, typically in a short sale, loan modification or deed in lieu transaction. Without the extension, any debt forgiven would be taxable. For distressed households this would “add insult to injury” and result in a large tax bill.
Also included in the Senate Fiscal Cliff bill is the extension of exclusion from taxes for gains on the sale of a principal residence of up to $500,000 ($250,000 for individuals). Thus, only home sellers whose income is $450,000 or above and the gain on the sale of their house is above $500,000 would pay taxes on the excess capital gains at the higher rate (with corresponding numbers for individual filers). For the vast majority of home sellers, there is no change.
The Senate Fiscal Bill has moved over to the House of Representatives where its fate rests in the hands of Speaker Boehner and his fellow Republicans. The House has until noon on Thursday to pass the bill or start over with the start of a new legislative session with newly elected members.
Richard D. Vetstein, Esq. is regarded as one of the leading real estate attorneys in Massachusetts. With over 25 years in practice, he is a four time winner of the "Top Lawyer" award by Boston Magazine, a "Super Lawyer" designation from Thompson/West, and "Best of Metrowest." For Rich's professional biography, click here. If you are interested in hiring Rich or have a legal question, email or call him at [email protected] or 508-620-5352.