Tina: ‘Fiscal cliff’ compromise big help for homeowners

Q: (Can you) follow up regarding the extension on the Mortgage Forgiveness Debt Relief Act? Thanks for your help and feedback.

- Noel M., Las Vegas

A: I've been getting lots of questions like this about the Mortgage Forgiveness Debt Relief Act, which Congress and President Barack Obama extended Jan. 1 as part of the "fiscal cliff" compromise.

Like most homeowners and housing experts, I was glad the government extended this tax forgiveness law, at least for one more year.

Congress waited until the last minute to extend this act that eases the tax burden on thousands of local homeowners, primarily those seeking to sell their home in a short sale.

The act technically expired on Dec. 31, 2012. It is now extended to Dec. 31, 2013.

With help from the government affairs experts at the National Association of Realtors, let me summarize how this and other last-minute legislation generally helps homeowners.

To answer your question, the government helped short sellers and homeowners receiving loan modifications by extending tax relief for one year that forgives mortgage debt in such transactions.

If this act had not been extended - and the same may be true if and when it is allowed to expire next year - thousands of Nevadans who are trying to short sell their homes would face a significant tax burden.

Without this legislation, any amount of money a bank writes off in agreeing to sell a home as part of a short sale becomes taxable when sellers file their income taxes.

Lawmakers made it clear that this act is unlikely to be extended again.

So, I'm advising all homeowners who are considering a short sale to get moving and get it done this year if possible to avoid a big tax burden in 2014 and beyond.

Just as importantly, in approving the "fiscal cliff" compromise legislation, Congress did not change the mortgage interest deduction, which benefits millions of Americans who deduct their mortgage interest from their annual federal income taxes.

Under this American Taxpayer Relief Act of 2012, tax rates would remain the same for most households. NAR was pleased to see that Congress continued to exclude taxes for gains on the sale of a principal residence of up to $500,000 (or $250,000 for individuals).

So, only home sellers with annual incomes of $450,000 or more who made more than $500,000 on the sale of their home would pay taxes on the excess capital gains at the higher rate (with corresponding numbers for individual filers).

In other words, for the vast majority of home sellers, there is no change or tax increase.

Also extended are tax deductions for mortgage insurance premiums and for state and local property taxes. Along with the mortgage interest deduction, these are important tax benefits for homeowners and buyers.

But the biggest benefit for local homeowners is that the bill extends mortgage cancellation relief for homeowners or sellers who have a portion of their mortgage debt forgiven by their lender - typically in a short sale or foreclosure sale for sellers, and in a loan modification for homeowners.

This is especially good news in Southern Nevada, where nearly half of all existing home sales are now short sales, which occur when the lender agrees to sell a property for less than what the borrower owes on the mortgage.

We know that tens of thousands of local homeowners are underwater, owing more on their mortgage than their home is worth. Thanks to this law, many of them will find the best solution to a tough situation is to short sell their home and start over.

Send your real estate questions to ask@glvar.org.

Dave Tina is the 2013 president of the Greater Las Vegas Association of Realtors, and has worked in the real estate industry for more than 35 years. GLVAR has nearly 11,000 members. Email questions to ask@glvar.org. For more information, visit www.lasvegasrealtor.com.