Short sales still make up 10.6 percent of existing sales

As I get caught up on my mail after returning from the annual convention of the National Association of Realtors this month, I found two recent questions from readers that I’d like to answer.

Both readers reference the federal Mortgage Forgiveness Debt Relief Act, which Congress allowed to expire back on Dec. 31, 2013 and has not yet renewed. I wish I had better news to share with these readers and many others who have asked about this issue throughout the year.

Q: Any new news on the bill extension for 2014?

–Todd R.

A: Unfortunately, in this case I’m afraid no news is not necessarily good news. As of this writing, Congress has not voted to extend this act, as Realtors had hoped and Nevada’s congressional delegation and others proposed earlier this year.

This uncertain situation has added stress to the housing market this year, especially here in Southern Nevada, where we were hit harder than most by the downturn in the housing market a few years ago.

Even though we’re seeing far fewer short sales this year than during the past few years, they still made up 10.6 percent of all existing Southern Nevada home sales as recently as October, according to the Greater Las Vegas Association of Realtors.

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 downturn in our housing market, thousands of Nevadans turned to short sales as a more favorable alternative to losing their homes to foreclosure. Short sales became especially common in the Las Vegas area, where they once accounted for a peak of nearly 46 percent of all existing local home sales late in 2012.

The act 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, we can expect to see even fewer short sales going forward. 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.

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

Q: Hi, Heidi. My wife and I just signed our home away to a buyer as a short sale yesterday. We live in Oregon. I’ve been keeping my eyes on the potential for a mortgage debt relief act renewal, and like many others, I hope it’s renewed retroactively.

My question is with regard to the 1099c the IRS will send us, is it just federal taxes we could be hit with, or is it state (taxes) too? Thank you.

– Kent and Lynn W., happily relocated in Happy Valley, Oregon

A: The 1099c is a federal Internal Revenue Service form for cancellation of debt. If your state has state income tax, it will most likely also be included in the state tax return as taxable income. You would need to check with your state income tax guidelines to confirm this.

Beyond that, as a former accountant myself, I also suggest you consult a qualified local accountant to advise you on your specific tax situation.

Please keep those questions coming, sending them to ask@glvar.org so I can answer them in a future column.

Heidi Kasama is the 2014 president of the Greater Las Vegas Association of Realtors and has been a local Realtor more than 11 years. GLVAR has more than 11,500 members. E-mail questions to ask@glvar.org. For more information, visit www.lasvegasrealtor.com.