No short sales are not going away…. however with the increase of home sales and prices, the foreclosures have decreased substancially.
Struggling homeowners can breathe a sigh of relief knowing that Congress has included an extension of Mortgage Forgiveness Debt Relief Act in an eleventh hour bill to avoid a possible fiscal cliff crisis. The Act that was scheduled to expire on December 31, 2012, was extended in the American Taxpayer Relief Act until December 31, 2013. Don Faught, the president of the California Association of Realtors, credits realtors in the association for their role in advocating for this extension of the Mortgage Forgiveness Debt Relief Act.
This relief will benefit homeowners who received mortgage debt forgiveness as a result of a reduction in principal, foreclosure, short sale or deed in lieu of foreclosure. Under the United States Federal Tax Code, any debt that is forgiven, including mortgage debt, is treated as income and, therefore, subject to income tax. As the expiration date drew near, homeowners rushed to complete short sales before the end of the year to avoid tax on the difference between their mortgage debt and the sale price. For many, this tax would have been thousands of dollars. By extending the Act, homeowners will not have to pay income tax on mortgage debt forgiven up to two million dollars.
This extension is especially important to underwater homeowners, who owe more for their home than it is worth. Short sales have enabled them to avoid foreclosure; however, already struggling homeowners with no equity in their homes would have faced significant difficulties paying income tax on their forgiven debt. Homeowners who are able to avoid foreclosure by receiving a loan modification that includes a principal reduction will also benefit.
The American Taxpayer Relief Act of 2012 also extends the exclusion of capital gains tax on principal residences. Single homeowners will be able to exclude up to $250,000 when they sell their home, while married couples will receive a $500,000 exclusion.
While there has been some decrease in foreclosures and home values are slowly rising, the crisis is far from over. Therefore, supporters are already advocating to extend the Act beyond 2013 in order to avoid another urgent attempt to protect homeowners and help stabilize the housing market.
This article came from the Huffington Post writer Anna Cuevas.