When the Debt Forgiveness Act ends in December, will Short Sales also end... or not?
We aren't hearing much about this act expiring in December. http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief...-
If it is not renewed - what is the incentive for people to follow through with a short sale? When the sellers are taxed on the debt forgiveness, that can mean paying tens of thousands of dollars in income tax. Kind of like kicking someone when they are already down!
For the most part, sellers who are coming out ahead when they sell are not being taxed on their gains....
Also, if short sales come to a screeching halt, will that mean that banks are going to wind up with more inventory as folks fall into foreclosure...? Will that affect the strength of the banks again as they will have so much inventory on their books?
When I was in D.C. last spring, our legislatures were looking at this act just as a benefit for a few people. It appeared they did not know how this could ultimately affect the foreclosure rate.
Thoughts?
Replies to This Discussion
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Permalink Reply by Wayne Brooks on
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I agree, most don't have any other significant assets. Generally the short sale is going to be better for our clients than foreclosure.
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Mortgage debt relief may be extended in tax code
Here's some encouraging
news for financially stressed homeowners across the country: The Senate Finance
Committee approved a bipartisan bill before heading home for summer recess that
would extend the Mortgage Forgiveness Debt Relief Act through 2013.
Read
the complete article at
http://www.dailyherald.com/article/20120810/entlife/708109989/
-------------------------------------------------------------
To
get more news and information from Daily Herald - Suburban Chicago's Information
Source - visit http://www.dailyherald.com
-
-
Mortgage debt relief may be extended in tax code
Here's some encouraging
news for financially stressed homeowners across the country: The Senate Finance
Committee approved a bipartisan bill before heading home for summer recess that
would extend the Mortgage Forgiveness Debt Relief Act through 2013.
Read
the complete article at
http://www.dailyherald.com/article/20120810/entlife/708109989/
-------------------------------------------------------------
To
get more news and information from Daily Herald - Suburban Chicago's Information
Source - visit http://www.dailyherald.com
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Permalink Reply by Kevin - Greenville, SC on
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Personally I don't see it having much of an effect in my market either way.
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Permalink Reply by Paddy Deighan, Esq on
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very few Sellers even know or care about the MFDRA,,,many homes are not primary residences anyway...Sellers have had their hand out to close on a deal for about two years. They want a lot more than the HAFA or Chase, BofA incentives
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Permalink Reply by Scott Dexter on
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This will be extended. Since the crisis is not over it would be unfair to the future short sale households that have to sell. What about the homeowner who has to transfer to keep his/her job?
On the other side of the fence strategic short sales will continue if the tax relief plan is extended so people who have income and savings will be able to buy another property before they short sell their existing home. Which in my opinion is dishonest and hurts the rest of us taxpayers.
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Permalink Reply by Nick Curcio on
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I agree with you 100%. Congress was supposedly working on extending H.R. 3648, but that may never happen (you know how Congress works). This will devistate the housing market again, as it is just BEGINNING it's recovery. I know the so called experts are stating that we are nearing the end of this housing crisis, that is poppycock, especially if the H.R. 3648 does not get extended.
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Permalink Reply by Joe McDermott on
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This may not need to be extended. Assuming it will get extended is only going to get some people in a panic unnecessarily.
The fact is that most people, in my market anyway, are so upside down that they qualify for forgiveness from their tax liability by virtue of using the IRS insolvency process. They just need to file a form 982 when they do their taxes and, if their total debts (pre-short sale) were more than their assets, they can use the IRS's own process to show they do not owe tax on forgiven debt.
The only challenge they might have is that SO FEW tax professionals have a clue how to properly complete a 982...I've read fewer than 5% can do it correctly.
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Permalink Reply by Joseph Alfe on
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First of all, there were short sale prior to 2007, and there will be short sales after if expires (if it does) In all my years of doing short sales, I have never once seen anyone actually owe taxes, because any good CPA can get around the tax issue. If it were not so, then there would currently be no short sales on investment properties, second homes, etc. In my opinion, the tax relief will be made a political issue just before the election and it will be extended. Obama will make a claim that the GOP must pass the extension or be against economic recovery, and rightly so.
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Permalink Reply by Pattilynn Guilford on
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Agree with you Joseph. Last week at a meeting the big 4 bankers said the same thing. Short sales have been around for a very long time, way before there was the Mortgage Forgiveness Act. I don't see how it will be extended with a deadlocked Congress in a lame duck session. Even if it is unfair...just don't see how it can happen sans another Executive Order from the prez.
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Most sellers can get around the tax issue on the FEDERAL side without too much difficulty. I utilize a four prong legal attack and I have sat down with senior IRS revenue agents that admitted that they "cannot disagree with me"...the issue is on the STATE tax side. Many states are gross income states..this means that there is a much smaller percentage of tax, but the deductions are not recognized. I had a client in NJ last week that was facing a 5.0% gross income state tax on $843,000...not a small payment.
Paddy Deighan J.D. Ph.D
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I have read many comments to this post that suggest that the clients do not have money are are not afraid of a foreclosure judgment or deficiency judgment. Folks, realize that the judgment lasts for 20 years...the credit aspect may be about 7 years. Can clients really say that they do not care?? They may not care now buyt they might later and sometimes it takes a little extra to avoid future headaches.
For example, I just negotiated a payoff to Green Tree that was for 8% - $8700. Ok, fair enough. It was the maximum that the 1st would have anyway. But for an extra $4700, I negotiated the total satisfaction...not just release. I asked the investor buyer and we put it on the HUD as a fee to me and I will pay it (in this manner the 1st's approval is not violated).
Paddy Deighan J.D. Ph.D
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