Congress needs to act, or forgiven mortgage debt won’t be forgiven next year. Fannie Mae and Freddie Mac now require shorter short sales from lenders they work with — there’s Unless Congress acts this year, short sale sellers will be in for an income tax increase in 2013. Let’s say you owe $150,000 on your mortgage, but your REALTOR® finds a buyer willing to pay $120,000. The bank approves the short sale and forgives the $30,000 difference. If you don’t complete the sale by Dec. 31, 2012, as of Jan. 1, 2013, that $30,000 in forgiven mortgage debt will be considered taxable income by the IRS.
It hardly seems fair, given that that the reason the lender forgave the debt in the first place was to facilitate the short sale — and help an underwater home owner climb out of financial hardship. Now, those home owners will be responsible for paying a new tax on “phantom” income. And it’s not just debt forgiven in a short sale that would be affected: The same tax hike would apply to home owners who work with their lenders to restructure their mortgages if they’re granted debt relief. The IRS would once again require these families to pay hundreds or thousands of dollars in additional income tax when they sell or refinance their home. That’s just wrong.” There’s time yet for Congress to pass one of these bills. (Houselogic 6/8/12)