The last-hour vote in Congress to avoid the “fiscal cliff” included a provision that extends the Mortgage Forgiveness Debt Relief Act through 2013, which is important to sustaining the nascent housing recovery in Las Vegas, local real estate professionals said Thursday.
The debt relief act, which was scheduled to expire at the end of 2012, waives forgiveness of mortgage debt from being counted as taxable income by the Internal Revenue Service.
That applies mainly to short sales of homes, or lender-approved sales for less than the principal mortgage balance. A homeowner who owes $150,000 on the mortgage and short sells for $100,000 would have been taxed on the $50,000 difference as income, placing them in a higher tax bracket.
Struggling homeowners who are considering a short sale or loan modification will be eligible for tax relief through Dec. 31 under the act passed in 2007 and originally scheduled to expire in 2009.
Short sales account for about 45 percent of all home sales in Las Vegas, the latest statistics from the Greater Las Vegas Association of Realtors show.
“I deal with a lot of short-sellers, and sellers were extremely worried about it here,” Wardley Real Estate agent Don Marti said. “I have people in short sales say, ‘If they don’t extend this (act), I’ll just let it go to foreclosure.'”
For some sellers, taxes incurred by the debt forgiveness could add up to tens of thousands of dollars, he said.
Channelle Beller of National Title Co. said short sales are a “huge part” of the Las Vegas market, where an estimated 60 percent of homeowners with a mortgage are under water, owing more than their home is worth.
“If we’re not more affected by this than anybody, we’re right up there,” she said. “It’s going to expire eventually, if not at the end of this year, and there are still people who need to short sell.”
National Title is presenting a free informational event at 10 a.m. Tuesday at 2425 E. Oquendo Road, with a certified public accountant to explain details of the mortgage debt relief act. Homes must be a primary residence to qualify, though rental homes sold at a loss can be deducted as business assets.
“Consumers have heard they’d be taxed as income,” Beller said. “There’s ways to write off that $100,000.”
The maximum amount that can be treated as qualified principal mortgage debt under the act is $2 million, or $1 million if married filing separately. Second mortgages are eligible if they were used for home improvements.
Short-sale agreements often include a plan to settle the remaining mortgage debt, Las Vegas real estate attorney Jamie Cogburn said. Otherwise, lenders can pursue the remaining balance under the loan agreement for up to six years.
Other real estate-related provisions in the bill:
■ Deduction for mortgage insurance premiums for filers making less than $110,000 is extended through 2013 and made retroactive to cover 2012. The tax break covers private mortgage insurance as well as mortgage insurance provided by the Federal Housing Administration, the Veterans Affairs and the Rural Housing Service.
■ Fifteen-year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012.
■ The 10 percent tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012.