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Barack Obama was elected for his second term as president of the United States and now it’s time for action especially in the distressed housing sector which has affected millions of Americans around the nation. Both houses of congress unanimously agree that the mortgage forgiveness debt relief act is a good policy and support an extension. However, there is no concrete evidence of an extension yet which will be detrimental to all distressed homeowners. How and when will this policy be extended?

What happens if there is no extension Jan. 1, 2013?

If you are involved in a loan modification, short sale, or a foreclosure, you will be liable for taxes on the forgiven amount because it is deemed as income. This is not a small tax liability. An example would be, if you owe $150,000 on your home and it sells in a foreclosure auction for $100,000, the amount remaining of $50,000 would be taxable income. If you are in the 25% tax bracket, you will have to pay the IRS $12,500 in taxes on the foreclosure.

Expecting struggling homeowners to be burdened with this tax liability after losing their biggest asset, would leave the homeowner in a dire financial crisis. Obama’s FY2013 budget proposal does include the extension of this act to 2015 but we are coming close to the expiration of this policy (Dec 31, 2012). Homeowners are now panicking and the National Association of Realtors as well as numerous realtors around the globe are participating in a call to action to extend this forgiveness act asap.

I believe the extension of this act will be extended. However, when and how are the questions that are up in the air. More than 50,000 homeowners go through foreclosure monthly. What should a struggling homeowner do when they are in pre-foreclosure and not sure of when this act will be extended?

Solutions: Short sales are still the best answer

Now that Obama has been elected, we are assured via his FY2013 budget that the forgiveness act will be extended. If you however lose your home to foreclosure after the expiration and before the extension, it could mean tens of thousands of dollars owed to the IRS post foreclosure, loan mod, or short sale.

If you are in at risk of foreclosure, I strongly suggest you begin trying to qualify for a short sale and get your short sale started right away. This way, you will be able postpone your foreclosure date and initiate your short sale which will take typically 3-6 months to close.

This would be your smartest financial move for your situation because you are avoiding a huge tax liability, avoiding a foreclosure which would be detrimental to your situation, and walking away from your home without being vulnerable of pursuit by your lender post foreclosure for the remaining balance.

Hope this helps

Peter

A ray of good news shined through the ominous clouds of the fiscal cliff this past week stating that the Mortgage Forgiveness Debt Relief Act has officially been extended. Through this act, homeowners who are involved in a short sale, foreclosure, or mortgage restructuring are able evade a significant tax bill.

However, the storm is not anywhere near from over. The recent fiscal cliff deal was a small step of progress but the federal deficit still needs to be resolved which calls for more budget battles ahead. Could we be seeing our last Mortgage Forgiveness Tax Relief Act extension in 2013?

Only hours before the end of year 2012, congress was able to strike a deal to avert the fiscal cliff. Fortunately, this included the extension of the debt relief act which is now set to the new expiration date: December 31, 2013. It is official and the proof can be found in the IRS Website or in the American Taxpayer Relief Act of 2012 Bill.

Homeowners are very fortunate to get one extra year of opportunity to short sell their homes. Congress realizes that without this extension, numerous homeowners would be devastated with critical financial conditions. Although, the extension of the various tax cuts alleviated our impending tax increases momentarily, our government is also in a bad financial position in that it has a debt ceiling issue to deal with and the $1.3 billion dollars in taxes that they lost through the extension of the act may be a provision that our government may not be able to continue in our future budgets.

We may get a better forecast in a couple of months as a debt ceiling battle in Congress may occur and more budgets will be established.

What are your thoughts on this? Do you believe we will get an extension beyond Jan 1, 2014?