One of the last items to be completed by the U.S. House and Senate in 2014, was asking President Obama to sign the Mortgage Forgiveness Tax Relief Act. This Act prevents home owners who are underwater also referred to as a Short Sale, from paying taxes on any mortgage debt forgiven or cancelled by a lender in a workout after their home was sold for less money than was owed.
In my opinion, this came too late. All year I had to tell potential Short Sale listings that due to not extending the Mortgage Forgiveness Act they would be subject to a 1099. The seller would have to pay taxes on the forgiven amount which in many cases could be $100,000. So, all year most potential Shorts Sale listings did not become listings due to this implication.
Once again home owners in 2015 will have to wait to see if the U.S. House and Senate will extend the Tax Relief Act. I’m hoping it gets approved before the 1st Quarter ends. These Sellers are losing their home, they are not profiting from the shortage and most likely do not have the funds to pay taxes on the forgiven debt.
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