Short Sale Debt Relief Extended Through 2013!

THIS IS EXCELLENT NEWS FOR THOSE WHO CONSIDERED THE OPTION TO SHORT SALE THIER HOME BUT HELD OFF DUE TO THE MORTGAGE DEBT RELIEF FORGIVENESS ACT THAT WAS SET TO EXPIRE DECEMEBER 31ST 2012. NOW THAT IT HAS BEEN EXTENDED FOR ONE YEAR, HOMEOWNERS DONT HAVE THE WORRY AND BURDEN OF BEING TAXED ON THIER SHORT SALE DEBT FORGIVNESS. THIS NEWS WILL SPREAD QUICK AND HOPEFULLY ALLOW HOMEOWNERS TO EXPLORE THE OPTION OF A SHORT SALE WITHOUT FACING TAX CONSEQUENCES. IF YOU EVER THOUGHT OF SELLING YOUR HOME AS  SHORT SALE, NOW IS THE TIME!… DONT WAIT UNTIL THE LAST MINUTE WHEN THIS BILL IS SET TO EXPIRE JAN 1ST 2014. CALL ME NOW TO SEE IF SHORT SALE IS THE BEST OPTION FOR YOUR CURRENT MORTGAGE SITUATION.  – JOEL B.

Rest easy if you’re trying to short sell your house – you won’t face a massive tax bill as a result if you complete the sale in 2013.

As part of the fiscal cliff deal, the Mortgage Debt Forgiveness Act of 2007 has been extended for one more year. Under normal circumstances, debt forgiven as a result of a short sale or mortgage modification would count as income for tax purposes. For instance, if somebody owes $250,000 on their mortgage and their lenders agrees to a $200,000 short sale, $50,000 in debt is forgiven. This would have been taxable without an extension of the law.

According to RealtyTrac data, short sales made up 22% of all residential short sales in the third quarter of 2012, a 17% year-over-year increase. A failure to reach an extension to this debt forgiveness law would have been deleterious to the nascent housing recovery.

At the end of the day, short sales are an important mechanism to clear negative equity from the housing market. Although not totally benign, they tend to have less negative impact than foreclosure (which is probably the most destructive market clearing tool).

By on January 2, 2013  via http://www.totalmortgage.com/blog/mortgage-rates/short-sale-debt-relief-extended-through-2013/18875

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Article from NAR:

Senate ‘Cliff’ Bill Retains Mortgage Cancellation Relief

Tax rates would remain the same for most households and mortgage cancellation relief is extended in a budget package passed by the U.S. Senate early this morning to avert the so-called fiscal cliff. The House today could take up the bill, which NAR has been monitoring closely because the fiscal cliff’s automatic tax increases and federal spending cuts involve programs important to real estate and impact household wealth. Based on what the House does, the provisions in the Senate bill could change in the final bill.

The “American Taxpayer Relief Act of 2012’’ passed on a bipartisan 89-9 vote in the middle of the night and extends current tax rates for all households earning less than $450,000, and $400,000 for individual filers. For households earning above these limits, tax rates would revert to where they were in 2003, when taxes were reduced across the board. That means taxpayers in the highest bracket would pay taxes on ordinary income at a rate of 39.6 percent, up from 35 percent.

The tax rate on capital gains would also remain the same, at 15 percent, for most households, but for those earning above the $400,000-$450,000 threshold, the rate would rise to 20 percent.

Importantly from NAR’s perspective, the exclusion from taxes for gains on the sale of a principal residence of up to $500,000 ($250,000 for individuals) remains in effect, so only home sellers whose income is $450,000 or above and the gain on the sale of their house is above $500,000 would pay taxes on the excess capital gains at the higher rate (with corresponding numbers for individual filers). For the vast majority of home sellers, there is no change.

The bill also reinstates provisions that phase out personal exemptions and deductions for incomes over $250,000 for singles and $300,000 for couples.

A number of what lawmakers call extenders are in the bill. Extenders keep in place expiring tax provisions. Of most interest to real estate, the bill would extend mortgage cancellation relief for home owners 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 modification for owners. Without the extension, any debt forgiven would be taxable, which, for underwater households, represents a financial burden.

Also extended are deductions for mortgage insurance premiums and for state and local property taxes, which, along with the mortgage interest deduction, are important tax considerations for home owners and buyers.

In two other important provisions, the alternative minimum tax (AMT) is permanently adjusted for inflation, making it unnecessary for Congress to adjust it each year. The AMT was enacted in 1969 to help ensure a minimum tax bill for high-income households that would otherwise minimize their taxes by shielding much of their income in deductions and using other tax strategies. Because it was never indexed to inflation, AMT threatens to catch middle-income households in the tax, so Congress each year adjusts it. Now the adjustment would be permanent.

The other key provision is a change in the estate tax so that estates would be taxed at a top rate of 40 percent, with the first $5 million in value exempted for individual estates and $10 million for family estates. Currently, the top rate is 35 percent.

The other side of the fiscal cliff is hundreds of billions of dollars in automatic, across-the-board federal spending cuts, with a disproportionate share of the cuts affecting defense spending. The Senate bill would push back the deadline for the cuts for two months.

LINK TO VIEW/DOWNLOAD NEW BILL: http://www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf

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