Pending tax break expiration is driving Georgia short sales
Unless federal lawmakers take action to extend it, the Mortgage Debt Forgiveness Act is scheduled to expire on December 31 of this year. This means that, in a few short weeks, homeowners who sell their homes in a short sale will be forced to pay income tax on the portion of their mortgage debt that is forgiven by the bank. This could amount to several thousand dollars in additional debt for these already-struggling homeowners.
In order to avoid this high tax bill, real estate agents in Georgia and across the country have been working hard to push short sales through before the year ends and the tax break expires. In fact, more homes in foreclosure have been sold in short sales this month than have been repossessed by banks and sold at auction.
In previous years, banks have been resistant to short sales. Recently, however, more lenders are on board after realizing that short sales are better than foreclosures for their bottom line. In addition, a deal between the government and five large mortgage lenders allows those lenders to claim some of the forgiven short sale debt against the amounts they owe under the terms of the mortgage abuse settlement.
However, the short sale trend could soon come to a halt if the tax break is not extended. Currently, the average amount of forgiven debt in a short sale is approximately $95,000. This means that homeowners who have sold their homes in short sales could be facing a $33,250 income tax bill – or higher.
We will continue to update our bankruptcy blog with any new developments.
Source: CNNMoney, “Short Sales Jump Ahead of Tax Hike,” Les Christie, Dec. 11, 2012