It may come as a surprise that Sellers of homes that are distressed may owe even more if they sell their homes than ever before! If the Mortgage Forgiveness Debt Relief Act of 2007 does not get extended by Congress by the end 2012, then the majority of these homeowners will have pay income taxes on the part of their mortgage that is forgiven when their home finally sells – whether it is in a foreclosure or short sale.
For example, if a $300,000 home sells for $250,000 it is considered a “short sale” because the homeowner most likely owes more than the home sold for and has to either bring money to the table to make up the difference, or the lien holders forgive this debt. If the debt is forgiven, the seller does NOT currently pay taxes on this $50,000 loss but if they had to in 2013, that cost could be as much as $12,500 if they are in the 25% bracket.
Currently, the amount is NOT being taxed because of the Debt Relief Act. As a homeowner myself, I feel that it is only fair that this “forgiveness” be taxed. If the homeowner gets a break and doesn’t have to pay for this then, surely, it will continue to filter down to those of us who have been responsible and we will end up paying MORE somewhere to make up for this amount. We cannot continue to offset mistakes made in the past and need to start being responsible home owners and taxpayers, otherwise the path we have been on as a country will never write itself again. Extending the Debt Relief Act will COST this country another estimated $1.3 billion dollars – it is inevitable though because, without it, we will have more foreclosures than ever before. To read more go to CNN Money.