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Earlier this year, Fannie Mae and Freddie Mac tightened their lender timing requirements for short sale closings that should prove very helpful to homeowners struggling to get a short sale closed.
However, unless Congress acts this year, short sale sellers can expect an income tax increase in 2013.
Natasha Padgitt explains it this way at houselogic.com, “Let’s say you owe $150,000 on your mortgage, but your REALTOR® finds a buyer willing to pay $120,000. The bank approves the short sale and forgives the $30,000 difference. If you don’t complete the sale by Dec. 31, 2012, as of Jan. 1, 2013, that $30,000 in forgiven mortgage debt will be considered taxable income by the IRS.”
In 2007, Congress passed legislation to protect homeowners from the tax, but that protection expires at the end of 2012.
One Senate bill recently introduced by Sen. Debbie Stabenow seeks to extend the law and eliminate the new tax. The Stabenow bill would extend the expiring law for two years.
“It’s bad enough that so many families are faced with mortgages that now exceed the value of their home,” Stabenow said in a statement. “But to add insult to injury, without this bill, the IRS would once again require these families to pay hundreds or thousands of dollars in additional income tax when they sell or refinance their home. That’s just wrong.”
If you have questions on the short sale process, please contact Jessica Dyer at Parks Title, (517) 853-8211 or jdyer@parkstitle.com.