As I pointed out in November, the income tax laws essentially dictate that short sellers pay income tax on phantom income when they sell their home: 4 Really Crazy Homeowner Tax Laws. As you might imagine paying a short sale tax would be devastating for someone who just lost their home along with their down payment. But the Mortgage Forgiveness Debt Relief Act of 2007 put a stop to that for 3 years. Ever since then congress has extended the law for one more year.
Unfortunately, they took their time in 2014 and it wasn’t clear if it was ever going to happen. So distressed homeowners were selling their underwater homes during the year either unaware of their potential income tax liability or on faith that the government would do the right thing.
Well, these short sellers are in luck because in December congress extended the “tax break” and the president signed it into law on December 19: Tax Increase Prevention Bill Provides Relief for Distressed Homeowners.
Of course, now it’s 2015 and short sellers have to worry about this all over again.
#realestate #incometaxes #taxlaws
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