One of the biggest issues that this non-functional body has to supposedly decide this year has to do with taxes – whether to extend the various taxes or tax cuts that are due to expire at the end of the year. Rather than any thoughtful discussion of the merits of any of the taxes or cuts involved, the “debate” (if one can call it that) has devolved into campaign sloganeering and name calling. Typical stuff in today’s Washington.
Lost in the calliope of bluster from both sides is the fate of a little Act of Congress that is the cornerstone of the short sale business in real estate – The Mortgage Forgiveness Debt Relief Act of 2007. This act, which was extended in 2008 by the Emergency Economic Stabilization Act, provides protection from taxation on the loss incurred by the bank for home short sales. Basically it protects the home seller from being given a 1099 Statement on the amount that the bank had to forgive in order to let the short sale happen. Prior to this Act, home seller would receive that 1099 and be responsible for paying taxes on that amount, just as if it was ordinary income to them for that year. The so-called “Phantom Income” from the sale was treated the same way as a withdrawal from a non-qualified IRA – as if you had received a bonus at work and now Uncle Sam wants his cut.
Obviously, having to pay taxes on money that you never really received was and is onerous to home owners/seller; so, the expected consequence if this tax law is allowed to expire will be a drastic reduction in short sales. That will undoubtedly have the effect of increasing foreclosures, since a short sale is a last resort before foreclosure for many sellers and that would likely throw the whole real estate market for a backward loop into the doldrums again.
So call or write your Congressman and tell them – “Get off your duffs and get to work for me!” Tell them that we can’t afford to let the real estate market slip back into recession while they fiddle around in TV sound bites doing nothing. There needs to be another extension of The Mortgage Forgiveness Debt Relief Act of 2007 before the end of this year. Then they can get back to the mud-slinging and political posturing over what, if any, portion of the so-called “Bush Tax Cuts” to extend and whether or not to completely fail in their elected duties and let the mandated automatic tax cuts of the Budget Control Act occur in January of 2013.