On December 31, 2013 the Mortgage Cancellation Tax Relief Act expired. Currently the US Senate S187 and the US House HR 2994 bills to extend the Tax Relief act retroactive have been stalled. I attended a meeting last week with Johnny Isakson, Georgia US Senator that co-sponsored of the Senate Bill, and he said the longer it takes the more unlikely it will pass. Who does this affect?
Since 2007 and ending Dec 31, 2013, any home owner that received ‘debt foregiveness’ through a ‘short sale‘ or ‘mortgage modification‘ or a ‘mortgage refinance‘ did not have to claim the debt reduction as taxable income. Now, without extending the Tax Relief act, they will. As an example: 1. You owed $250,000 on your property and the mortgage company reduced it to $200,000 so you could stay in your home. Today, you would have to add the $50,000 as taxable income, so you would owe the IRS about $14,000. 2. If you owed $225,000 on your home and you sold it as a ’short sale’ for $125,000, you would have to add the $100,000 as taxable income and owe the IRS $28,000.
What this means to the real estate market in 2014. 1. Less inventory because under water properties will not be coming on the market. 2. Less refinancing using the HARP program. Who loses: any profession that makes money off of the closing of a real estate sale or refinance; such as: agents, closing attorneys, appraisers and mortgage brokers. Who wins: Less inventory means prices will go up for those properties coming on the market. In coming months we look for a less inventory and a continued increase in sale prices.