Guest post by Andrew – financial writer who loves to contribute his article to the communities, blogs and websites. He analyses people’s financial situations minutely and advises on different options available. He also helps people manage their budgets through free counseling.
Thanks to a law, some sort of tax relief is being provided to home sellers to ease the stressed financial condition that they are in. This law is meant to provide the much-needed tax relief on the forgiven mortgage debt. The news is all about the extension of that law through 2013. All of this and the extension is a part of the fiscal cliff deal.
You must remember that short sales include processes where mortgage debt is forgiven. Now the forgiven amount in loan workouts and short sales is taxable. This clearly means that borrowers will have to pay money for the amount of money that’s forgiven. It was the year 2007 when something of great value did happen and the Mortgage Forgiveness Debt Relief Act saw the light of the day. This made sure people didn’t have to pay for the loan balances anymore. The limit of the loan balance is $2 million. The amount is $1 million in case the tax filer is married and submitting a return separately.
Well, this law was supposed to expire at the very beginning of the year 2013. The fact that this law was handsomely responsible for the individual tax breaks in the whole fiscal deal made it really difficult for people to absorb the truth about its expiry. Professionals in the real estate sector had to keep a close watch on the progress. The future of this law is going to be dramatic when taken into consideration the fact that almost 30% of the home resale that happened in the County of San Diego was short sales. Short sale is a very common concept as it involves the selling of properties by homeowners for a value less than what they are actually worth. This could be successfully done only when the banks have approved of the whole process.
The year 2012 is witness to the birth of these deals. It happened due a very special national mortgage deal wherein banks are forced to provide housing relief to their consumers. This resulted in the arrival of help to borrowers from California. It is to be noted that 2/3rds of the overall assistance were short sales.
Effect of expiration
There could have been some serious consequences had the mortgage debt relief act expired in 2013. San Diego would surely have featured amongst the country’s worst hit. Foreclosures and bankruptcies would have risen by the highest degree. This would have obviously happened due to the tax bills that borrowers would have remained stuck with post loan modifications or short sales.
It is really hard to imagine how deeply the country’s housing inventory would have been slashed by the expiration of the law. A very few number of homeowners would have opted for short sales in the absence of the tax benefits. Reduced sales mean reduced number of homes in a country that’s already crippled with a weak housing inventory if not anything else. People would have been left with no choice but to let go of their homes.
Andrew can be contacted at firstname.lastname@example.org