The Mortgage Debt Relief Act became effective in 2007. The act allowed owners selling their home as a short sale not be responsible to pay taxes on the deficiency amount. The deficiency amount is the difference between the what is owed on the mortgage and what the proprerty sold for. The tax change means the seller would owe federal income taxes on that amount forgivin by the bank. For example, if the seller is in the 15% tax bracket, they would owe the IRS $15,000 on a $250,000 lien that sold for $150,00. Some real estate analysts think doing away with the tax incentive will sabotage the government’s efforts to gradually move people out of homes they can no longer afford. That will end in 2013, giving homeowners until the end of this year to get out from under their debt without facing tax consequences. Tim Becker, director of the University of Florida's Bergstrom Center for Real Estate,said the tax change may force some owners to walk away from their homes outright. Letting the tax exemption expire doesn't make sense and runs contrary to the government's attempts to bring some financial stability to the housing market.
Ainsley Daux
Florida Realty
(813)546-1954
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