As a member of the National Association of Realtors, a trade organization and political action committee for real estate agents nationwide, we are often asked to “rally” behind a political movement, position or law that will affect the housing market in a negative or positive way.
Today, I received an email that I would translate as good news for California homeowners that may be in a situation where default is a possibility after December 2012. With the support of the National Association of Realtors, your voice will be heard.
Here is an excerpt from this call to action that explains what expiration would mean to those affected:
Congress will soon return to Washington with unfinished business to complete. One of those items is a housing issue that could affect almost one-quarter of all real estate transactions – the expiration of Mortgage Forgiveness Tax Relief.
Without action before the end of the year, millions of families who hold distressed properties could face a hefty tax bill for trying to modify their mortgage or to seek a short sale through their lender. Even those facing foreclosure will find themselves forced to pay a “foreclosure tax” if Congress doesn’t act.
This is because the amount of debt forgiven by the lender would be considered “phantom income” to the borrower even though they never receive any payment from the lender. No taxpayer should be forced to pay tax on money they’ve already lost with cash they never received.
I don’t think there is any question that if Congress fails to extend this Tax Relief Act, it will hurt tens of thousands of home owners that have been victims of plummeting home values, further postponing the recovery of California’s real estate market.
California is a Non-Recourse State
Not everyone will be affected by either the extension or the expiration of the the Mortgage Forgiveness Tax Relief program. California is a Non-Recourse State which means that if you default on a purchase money loan, you will not incur tax liability.
How do you know if your loan is Non Recourse?
- Your current home loan(s) was used to purchase your home
- You did not take out an equity line of credit after the purchase of the home
- You have not refinanced your home since you purchased it
My Opinion: I do believe that Congress will vote on the extension of mortgage debt tax relief. While this is strictly by personal opinion, I expect that it will be extended. It’s also possible that we will not see a vote until 2013, in which case I expect that it will be made retroactive so that there is no window within which forgiveness would not be granted.
We’ll keep an eye this vote and report as soon as we hear something. Stay tuned.
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