Among the many changes we can expect in the New Year, the expiration of the current tax break for short sales on December 31 will impact us first as people rush to complete any short sales or restructurings currently in the pipeline.

As you may recall, the Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence through a short sale, a mortgage restructuring or a release or waiver of deficiency in connection with a foreclosure.  As is always the case in the Tax Code, there were certain limitations, conditions and provisos:

1. The property had to qualify as your principal residence.  No rental properties or second homes allowed.
2. The cancelled debt had to be debt incurred to buy, build or improve your principal residence or refinance debt incurred for those purposes.   Amounts related to a cash-out refi don’t qualify for this special treatment.  This has always been one of the big limitations on when a short sale made sense for customers.
3. The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately for the tax year); and
4. The amount forgiven must be reported on the homeowner's tax return and form 982 filed.

While we are cautiously optimistic that this tax relief will be renewed in some form or fashion --  as we rush headlong up to the “fiscal cliff,” nothing in Washington is certain. We understand that this issue is now caught up with the ongoing debate over the mortgage interest rate deduction among others.  

Florida’s Attorney General, Pam Bondi  is leading a group of attorneys general from around the country in lobbying for an extension of the tax break.  She argues that allowing the tax break to expire would dilute the $25 billion mortgage settlement made with the nation’s five largest banks in March.  If you'd like more information, please contactSouthern Title.

Among the many changes we can expect in the New Year, the expiration of the current tax break for short sales on December 31 will impact us first as people rush to complete any short sales or restructurings currently in the pipeline.

As you may recall, the Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence through a short sale, a mortgage restructuring or a release or waiver of deficiency in connection with a foreclosure.  As is always the case in the Tax Code, there were certain limitations, conditions and provisos:

1. The property had to qualify as your principal residence.  No rental properties or second homes allowed.
2. The cancelled debt had to be debt incurred to buy, build or improve your principal residence or refinance debt incurred for those purposes.   Amounts related to a cash-out refi don’t qualify for this special treatment.  This has always been one of the big limitations on when a short sale made sense for customers.
3. The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately for the tax year); and
4. The amount forgiven must be reported on the homeowner's tax return and form 982 filed.

While we are cautiously optimistic that this tax relief will be renewed in some form or fashion --  as we rush headlong up to the “fiscal cliff,” nothing in Washington is certain. We understand that this issue is now caught up with the ongoing debate over the mortgage interest rate deduction among others.  

Florida’s Attorney General, Pam Bondi  is leading a group of attorneys general from around the country in lobbying for an extension of the tax break.  She argues that allowing the tax break to expire would dilute the $25 billion mortgage settlement made with the nation’s five largest banks in March.  If you'd like more information, please contactSouthern Title.