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This is overblown. Most distresed homeowners will be covered by the insolvency clause afforded to them by the IRS. Look it up along with form 982.
Strategic defaulters should be concerned but not the typical distressed homeowner.
My fingers are crossed for an extension. I have not had any insight of an Extension into 2014. I have been seeing, in MN, a huge decrease of short sales and foreclosures in 2013. Many banks (this past year) have been denying short sales and/or asking the seller(s) for unrealistic cash settlements on qualified homeowners. Short sales have been taking longer and have been very difficult to process. We (MN Realtors) are also seeing that appraisals/BPO's ordered by banks are coming back with errors and inconsistencies when ordered for a short sale. Several of us seasoned short sale specialists, have challenged banks in regards to this. I just wonder, if banks are denying files and dragging their feet so they can go after homeowners for deficiencies in 2014 and the IRS can nail the homeowner(s) with taxes? This would be another way for the banks to "recapture" losses. We have all seen, heard, and felt the layoffs of it's employees (which happened in the first quarter of the year) with the larger banks whom are "processing" these files. In my opinion, the banks have been preparing for this M.D.F.A.E. to expire. It is our job to help and protect homeowners that are in hardships. I feel like us short sale Realtors are on an island all alone with our homeowners. :(
@ Ron, Yes, they are 2 different issues, but they do relate to each other for the fact that Under the Act, taxpayers may exclude debt forgiven on their qualified principal residence up to $2 million ($1 million for a married person filing a separate return). the act applies to the amount of debt forgiven... while one may no longer owe that amount of debt to the mortgage lender(s), the cancelled amount may still be considered taxable by the IRS. This is because under the Internal Revenue Code, all types of forgiven debt are still treated as income and subject to taxes. *check tax codes* IRS Tax Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness, and Section 1082 Basis Adjustment)
The lender(s) can write off the loss. However, they can still go after the homeowner for the debt(s).
With the M.D.F.A.E. expiring. the homeowner(s) "may" have to pay taxes on this amount- they get slammed with an owed tax amount from the IRS and in addition to, in some cases, (which we will see more of going forward), the lender will go after the homeowner for the full deficiency. There will not be protection from the deficiency's or the taxes. So your are correct, they are separate but they both affect the homeowner(s) under the same situation (short sale). That was the connection. :)
It will make very little difference as most will be covered by IRS insolvency rules. Not a big deal in my opinion