If, like the rest of the country, you have been keeping tabs on the fiscal cliff, then it might delight you to know that we have good news for the short sale tax relief. It has been extended!
Short sales became a popular alternative as Americans started giving up their homes due to the economic struggles a few years back. Instead of the more credit damaging foreclosure, people opted for this transaction because it helped them get a bit of tax relief.
Short sales played an important role in the housing market recovery so having it pulled out shook the fragile confidence of the Americans in the real estate industry. But apparently, that fear and worry is no longer valid. The short sale tax relief had been extended until the end of 2013.
In case you did not know, a short sale is best for homes that has a lower value than the loan of the homeowner. If the owner is unable to continue paying for the loan, they will propose this transaction with the lender. If they agree, the owner will sell the home and all proceeds will serve as payment for the loan. Most of the time, the sale cannot cover the remainder of the mortgage loan. Depending on the agreement, the lender may or may not forgive the balance of the mortgage.
This is where the short sale tax relief comes in. As stated by the law, any debt relief is considered a taxable income. So without it, the homeowner has to pay taxes after a short sale. Because of this law, a lot of consumers are exempted from paying taxes on that forgiven debt. Since the law was passed in 2007, homeowners looked to this relief to help them save thousands of dollars in taxes.
Late in 2012, however, a lot of real estate folks started to get apprehensive. The looming fiscal cliff meant that the government will withdraw the financial support that helped make acts like the short sale tax relief possible. If the government pushes through with the fiscal cliff, homeowners may opt for foreclosures instead of short sales. No one wants to pay for additional taxes for forgiven debt after all.
The lawmakers and the President himself felt that despite the decreasing unemployment rate, the economy was not yet ready to stand on its own. The government had to postpone some parts of the fiscal cliff. They toiled over the holidays to arrive at a deal that will help sustain the economy. At the same time, they dealt with the federal budget deficit that was brought about by all these financial support.
After the President and the lawmakers passed the agreement that the short sale tax relief will be extended, a lot of homeowners heaved a sigh of relief. This is especially good news for those who are in the process of buying a home – and even those who are just planning to.
If you want to know more about the latest development in the short sale tax relief, get in touch with us. We would be happy to answer any questions that you may have about short sales. And if you are planning to sell your home through short sales, you will need a professional team to assist in making the transaction a smooth one. That is a service that we can provide so give us a call now.
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