PHOENIX — Barring an extension from the federal government, the Mortgage Forgiveness Debt Relief Act, in place since 2007, will end and if you want to short sell your home, you need to act soon, a Valley realtor said.
Thousands of Valley homeowners remain underwater and are considering short sales, said Diane Brennan with 92.3 KTAR’s “That Real Estate Show.” Many people are unaware of the program possibly ending.
“If you’re thinking about short selling you need to get in touch with your tax accountant or real estate attorney,” she said. “I’m finding the problem is that many people don’t know their options.”
The Mortgage Forgiveness Debt Relief Act gave many people a needed tax break but Randy Courtney with Courtney Valleywide Properties said that when the tax break ends, homeowners will be taxed on the amount of debt that the bank writes off on the short sale.
For example, if you owe $200,000 and short sell for $100,000, you will be liable for the tax on the difference. Courtney said future short sellers will be hearing from the government if the act is not extended beyond this year.
“They will be issued a Form 1099 for the loss and that becomes ordinary income so the IRS will treat that as income that the homeowner earned,” he said.
And that tax bill could be tens of thousands of dollars, which would add insult to injury for people who gave up a home they loved.