Q: I’ve heard that there’s some sort of tax deadline coming up that encourages people to sell their home before the end of this year if it’s a short sale. Can you tell me more about this?
– Jayne C., Las Vegas
A: I’m glad you asked this question since I think it’s important to spread the word about this situation. I know that many would-be home sellers here in Southern Nevada and nationwide have decided to sit on their properties to see what the housing market does and what banks may decide to do next.
But this delay game could cost them in the near future. I’ve been reminding homeowners facing a short sale that they may want to consider selling their home this year to take advantage of current tax laws that are due to expire at the end of the year.
On Dec. 31, the Mortgage Forgiveness Debt Relief Act of 2007 will expire, unless President Barack Obama and Congress act to extend it. This means that after Dec. 31, whatever amount of money the bank writes off in agreeing to sell a home as part of a short sale will become taxable income when the seller pays his or her federal income taxes.
This law also applies to debt reduced for borrowers who lose their home in a foreclosure or who benefit from a mortgage loan modification. Basically, if the current tax break is allowed to expire, it will be comparable to the borrower getting a big extra check at work for that tax year. This is obviously not a position that distressed homeowners want to be in, if they can avoid it.
This is a big factor here in Southern Nevada, where we’ve had one of the nation’s highest foreclosure rates in recent years and where short sales account for about 30 percent of all existing home sales. As most readers of this column know, a short sale occurs when a lender agrees to release its lien on a home so it can be sold for less than what the borrower owes on the mortgage. The borrower may still owe the extra amount, unless the lender agrees to forgive the difference.
Realtors have been encouraging government and industry leaders to streamline and simplify the short sale process, which can frustrate potential buyers and sellers as they hang on for what can often take several months waiting for banks to make a decision on an offer.
Realtors are also urging Congress and government leaders to extend this mortgage relief act. Of course, there’s no guarantee that this will happen.
As with all tax and legal issues, I always advise people to consult an accountant or an attorney to find out more about how such things may affect them. But, overall, I think people considering a short sale would be wise to get moving before the end of the year. For more information on the Mortgage Forgiveness Debt Relief, visit www.irs.gov.
Kolleen Kelley is the 2012 president of the Greater Las Vegas Association of Realtors and has worked in the real estate industry for more than 30 years. To ask her a question, email her at firstname.lastname@example.org. For more information, visit www.lasvegasrealtor.com.