SARASOTA - People who do a short sale on their home might face a much bigger tax bill. And the law that expired at the end of last year could have a huge impact on the Suncoast real estate market.
If you do a short sale, you don't pay back all the money you borrowed in your mortgage. Usually, the part you don't have to pay is taxable income. Congress passed a law called the Mortgage Forgiveness Debt Relief Act of 2007 to fix that temporarily to get us through the housing crash. The crisis has not totally passed, but the law has expired, just like last year.
“I cannot believe the absurdity of Congress that we're having this discussion once again,” says Sarasota real estate attorney Anne Weintraub.
Short sales, where banks allow homeowners to sell their property for less than they owe on their mortgage, have played a key role in the housing recovery we've had so far.
“Oh, it's been tremendously helpful,” says Sarasota Realtor Lynn Robbins. “It's saved some people hundreds of thousands of dollars.”
She says now short sales make up only one-fifth of all listings, instead of the one-half they did in late 2012. Still, it would harm those who need to resort to short sales. Weintraub has even stronger words. Losing the law now – and leaving struggling homeowners the choice between foreclosure or a giant tax bill – would kick the housing recovery in the knees.
“The relief is not for multimillion-dollar mansions. it's for the average Joe,” she says. “We can do better than this. This is absolutely ridiculous.”
Last year, Congress finally acted in january, and made the law retroactive to cover anyone who had done a short sale. If lawmakers do nothing this year, the market will see effects. But it will still see at least some short sales, because one thing has not changed from last year, Robbins says. Most people who do them, don't have a choice.
"What is one to do? They don't have the money," she says.
ABC7 emailed congressman Vern Buchanan's office Tuesday to see if he plans a similar push to the one he made last year to get the one-year extention of the law, but we did not get a reply yet. Weintraub says that, if up to her, she'd extend it for three years, because that's how much longer she thinks the problem could last.