New Fiscal Cliff Tax Extensions Helps Short Sales

 Posted on January 17, 2013 in Foreclosure

Many news reports from the last few months have talked about the “fiscal cliff” and how badly consumers and businesses would be affected by increased taxes. At the last moment, Washington came to an agreement about how the tax breaks would be handled, if that meant modifying them, extending them or letting them expire at the end of 2012. One tax measure included the decision was the Mortgage Forgiveness Debt Relief act of 2007.

This act benefits people who are planning to unload their houses and who have underwater mortgages. A short sale allows the principal to be reduced by a mortgage lender and helps avoid foreclosures. But, without the extension of this tax break, people who complete short sales could be responsible for punitive taxes on the forgiven amount.

The good news for those looking to short sell their homes is that the Mortgage Forgiveness Debt Relief act was extended to the end of 2013. The tax benefit also helps people who have experienced a reduction of principal, foreclosure, or deed in lieu of foreclosure, though it helps short sales the most.

An example of the benefits of this tax break is as follows. If a person owes $150,000 on their house but sells it short at $100,000, then they would owe taxes on the $50,000 that was not recouped by the sale. If that person is in the 25% tax bracket, then they would owe $12,500 in taxes to the IRS. That is no small amount for someone who goes through foreclosure action.

It is very fortunate that this act was extended for another year. Yet, it is only a small help for homeowners who have properties that are being foreclosed. Another kind of assistance can be had from a legal professional with experience protecting homeowners. Contact a knowledgeable foreclosure defense attorney in Crystal Lake today.