Welcome to San Diego Blog | January 2, 2013
Mortgage Debt Foregiveness Extended
As part of the “fiscal cliff” negotiations that occurred last night, congress reached a settlement that will benefit many home owners that may still be under-water. On account of this, The Mortgage Debt Relief Act has been extended for one more year. What does this mean?
If a home owner sells a property via short sale or foreclosure or participates in a loan modification, then they will remain exempt from the taxation of the mortgage debt. Put simply, they don’t get taxed on the amount they were upside down.
For example, If a homeowner purchased a home in 2007 for $800,000 and they still owed $700,000 yet the property is only worth $450,000, then if they were to sell as a short sale, they would not be taxed on the forgiven $350,000 or so from the loan.
San Diego Short Sale
Could you imagine doing a short sale and then receiving a tax bill from the IRS and then State of CA for $70,000 or more? It would be adding insult to injury. While the real estate market is starting to improve, it would take years for some home owners to get back to the point of zero equity or not being negative on their property.
If somebody started a short sale in 2012 and it was not finished in 2012, then there now no reason to panic because the debt forgiveness is still in place. If you had considered doing a short sale in 2012, but didn’t get to it, now is the time. I would bet money Congress won’t extend this into 2014.
When considering a short sale, it is always a good idea to consult with your tax advisor about your particular situation and how the tax laws may be applied to you.
For 2013, high income earners will also see the capital gains rate rise from 15 percent to 20 percent. For capital gains on principal homes, the rates will remain unchanged. There exclusions will remain at $250,000 for single tax payers and $500,000 for married couples or joint filers.
If you are considering a short sale, give us a call to discuss the benefits: 619-309-8011