With the growing number of homeowners having difficulty making mortgage payments and faced with homes that are now not worth as much as they owe we are seeing an increase it short sales. This is where a homeowner attempts to sell the home and then convince the lender to take less than they are owed. We just received approval from a lender to move forward on one of my listings. What you may not know about these arrangements is that the homeowner must pay taxes on the amount of debt forgiven just like it was income.
Last week the House Ways and Means committee approved a bill that would relieve taxpayers of the liability due to mortgage relief. Not a law yet, but it appears to be moving through the legislative process and should be finalized soon and be retroactive to January 1, 2007.
The bill (H.R. 3648) would establish a permanent exclusion from gross income of discharged home mortgage indebtedness despite Republican reservations over the offset.
Committee ranking member Jim McCrery (R-La.) expressed support for the tax relief, saying it is necessary to help put the American housing market back on track, but said he is opposed to pay-as-you-go rules that result in taxes being raised in one area to pay for relief elsewhere.
The nearly $2 billion bill is paid for with a provision whereby the gain from the sale or exchange of a principal residence allocated to periods of nonqualified use is not excluded from gross income. Currently, individual taxpayers may exclude up to $250,000 ($500,000 if married filing a joint return) of gain realized on the sale or exchange of a principal residence.
McCrery and other Republicans expressed reservations about the reach of the provision and its impact in certain markets around the country, but McCrery said endorsements from the National Association of Realtors, the National Association of Home Builders, and the Mortgage Bankers Association “helps alleviate” his concerns.
Some Republicans also questioned why the bill creates a permanent exclusion and does not follow the three-year plan recommended by President Bush, but a Treasury Department official testified that the administration supports moving forward with this bill.
The legislation also would extend for seven years the deduction for private mortgage insurance and would modify the qualification tests for cooperative housing corporations.
We specialize serving the needs of buyers and sellers of homes in the Roseville and Sacramento area including Sacramento, Placer, El Dorado, Sutter and Yuba counties.