Short Sale Home Sellers Face Huge Tax Bills If Breaks Arent Reinstated

Dated: December 2 2014

Views: 1135

The wrangling in Congress that has prevented a package of expired tax breaks from being reinstated threatens to slap massive tax bills on thousands of Americans who have given up their homes in “short sales,” a common practice after the 2008 real estate crash in which banks allow homes to be sold at lower prices than the amounts owed on the mortgages.Without a renewed exemption, families would have to pay taxes on the forgiven mortgage debt as if it were income, although they merely avoided foreclosure and walked away from their homes without earning anything from the sales. Supporters of the exemption say taxing the phantom income would only hurt Americans who suffered most from the Great Recession, people who resorted to short sales because they didn’t have enough money to make mortgage payments and simultaneously faced the plummeting values of their homes. More than 170,000 homes were sold in short sales in the U.S. from January through September this year, with an estimated $8.1 billion of mortgage debt forgiven, according to the latest data available from housing research and analytic firm RealtyTrac.

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