Short sales are growing in popularity, but that may soon change. The “Mortgage Forgiveness Debt Relief Act and Debt Cancellation” is expiring at the end of the year, which could make more home owners think twice about doing a short sale, CNBC reporter Diana Olick reports.
Debt forgiveness with short sales is taxable. But in 2007, Congress passed a law that temporarily relieved that tax burden by making the debt forgiveness from a short sale or a mortgage principal reduction no longer taxable. If the act expires, many in the real estate industry speculate that short sales will drastically decrease.
Many real estate professionals “believe if the legislation is not extended, households who are already struggling to pay their mortgages will be further burdened with tens of thousands of dollars in additional taxes that they probably can’t afford to pay because the IRS would count the cancelled debt as income,” says Jamie Gregory, a lobbyist for the National Association of REALTORS®.
A bipartisan move is under way that could extend the tax relief. The Senate Finance Committee passed a package that included several tax extensions recently, including a one-year mortgage relief extension. The House of Representative is still weighing how to handle the tax extensions, however.
In the first quarter of 2012, more than a quarter of a million short sales were completed, according to data from RealtyTrac. Some analysts speculate that short sales will increase this fall as borrowers and banks rush to complete them before the expiration of the mortgage debt relief act.
Editor’s Note: NAR is focusing its efforts on several issues left unfinished by Congress. Extending the Mortgage Cancellation Tax Relief is an urgent priority during the expected “Lame Duck” session of Congress following the election in November.