Failure to extend Mortgage Forgiveness Debt Relief Act will affect many

Q: Hi. I was wondering if I had a short sale that was approved Dec. 26, but the settlement was on Jan. 30, will that still fall under the (federal) debt forgiveness act? Thanks for any info.

— Sue T., Las Vegas

A: To answer your question, it’s the closing date of your short sale that determines whether or not your transaction falls under the federal Mortgage Forgiveness Debt Relief Act.

So, since you say that your short sale closed in January 2014, your property is considered to have sold after the act was allowed to expire on Dec. 31.

It’s still possible that you may yet enjoy the tax benefits of this act, but that would require an act of Congress, which would have to vote to extend this tax relief law and make it retroactive to the beginning of 2014. For your sake, and to help thousands of other Nevadans facing similar situations, I hope this happens.

But as of now, there’s no guarantee that Congress will vote to extend this act for one or more years, as Nevada’s congressional delegation, the National Association of Realtors and others are encouraging lawmakers to do.

I’ve been writing about this issue quite a bit so far this year. The more I mention it, the more questions I receive about this issue from readers like you.

I can certainly understand why so many people are interested and even a bit stressed by this uncertain situation. After all, short sales are still a fairly significant part of our local housing market, making up 17 percent of all existing Southern Nevada home sales as recently as January, according to GLVAR statistics.

A short sale occurs when a lender agrees to accept less than what the borrower owes on the mortgage when the borrower sells the home.

During the Great Recession and the prolonged downturn in our housing market, many Americans turned to short sales as a more favorable alternative to losing their homes to foreclosure. Short sales became especially common in Nevada and here in the Las Vegas area, where they once accounted for a peak of 34 percent of all existing local home sales back in June of 2010.

The Mortgage Forgiveness Debt Relief Act of 2007 was designed to help such distressed homeowners, primarily by helping them avoid a big hit on their federal income taxes.

If Congress does not extend this act retroactively, I expect to see more foreclosures and fewer short sales this year. That’s because any amount of money a bank writes off in agreeing to sell a home as part of a short sale starting in 2014 may become taxable when sellers file their federal income taxes.

As the NAR points out on its website at www.realtor.org/topics/mortgage-debt-cancellation-relief, “NAR believes an extension of the mortgage cancellation relief may not be passed until after the November elections.”

I strongly encourage people in this situation to consult their accountant to find out what’s best for them and how a short sale and the debt that may or may not be forgiven on their federal income taxes may affect them.

Heidi Kasama is the 2014 president of the Greater Las Vegas Association of Realtors and has been a local Realtor for more than 11 years. GLVAR has more than 11,000 members. Email questions to ask@glvar.org. For more information, visit www.lasvegasrealtor.com.