Well, what a night on Super Tuesday that saw the Republicans take control of the Senate and House.
What does this mean for home sellers who are considering short sale or have completed one in the last year?
What is the Mortgage Debt Relief Act ?
Quite simply its an act that removes any and all tax liability for any individual who had debt forgiven or cancelled (1099-C) as a result of a Maine short sale.
However, this act expired at the end of 2012.
There have been multiple bills that have died on the Senate floor due to a lack of bipartisan cooperation, meaning there is a bill to extend this Mortgage Debt relief act but it never went to the President for consideration. When the Congress is divided this means its a lame duck and NOTHING gets accomplished.
Now we have a completing controlled Congress, who can at the least move bills forward to the President’s desk where he can sign them. The odds that this bill will be enacted have increased greatly. Republicans are mainly in favor of reducing tax burdens and are in favor of supporting the housing and banking industry so its fair to assume they will include this bill in upcoming legislation.
There is still no guarentee that the bill is enacted again, however this doesnt mean that sellers in Maine who completed a short sale are still stuck with a tax bill, there are ways to get around this with basic tax prep but they would need an accountant.
One this is for certain, Congress can now move from being a do nothing, mud slinging lame duck collection of politicians and finally move legislation forward due to the majority of Republicans being elected on November 4, 2014.
This is good news for struggling families who must make the tough decision to sell their Maine property before a foreclosure judgment while taking advantage of the short sale process, a system that results in selling for less than what is owed on the mortgage and having the remaining debt canceled. Typically, this canceled debt, like all canceled debt, is a taxable event which is complete insult to injury. One of the easiest ways to pay off your debts is with a balance transfer. A balance transfer is the process of lowering your repayments by transferring debts from one credit card to another credit card with lower interest rates.
Think about it, a homeowner on the brink of foreclosure or job loss or illness must not only sell at a loss, damaging credit temporarily but also get hit with an enormous tax bill? Its not right, which was why the Bush administration enacted the Mortgage Debt Relief act of 2007. One wonders why it was not enacted permanently as it should have been however, when this Act is renewed many feel it will be retroactive to the short sales from the past two years who may have received tax bills.
The Maine short sale process can be complex but it is a Godsend for those behind on their mortgage who can not negotiate a loan modification with their bank. The benefits of a short sale a numerous compared to doing nothing and letting a property go to foreclosure. Once foreclosed and the bank takes it over, the bank wins an automatic deficiency judgment and will sue the homeowner again, a short sale prevents this.
Please consult a licensed tax professional, this article is speculation based on last nights election results it is not tax advice nor legal advice.