When you hear the talking heads discuss how Washington has “kicked the can down the road,” for Florida home owners and those Floridians interested in short sales or mortgage foreclosure defense this means one thing: they’ve got one more year to get their property sold.
According to the Fiscal Cliff legislation that was signed into law today by President Obama, the new date for everyone to use as a deadline for closing their short sale is December 31, 2013.
1. Mortgage Forgiveness Debt Relief Act of 2007 Expires on December 31, 2013
Those interested in short sales here in South Florida, either short sales of condos, townhouses or single family homes, have been given a bit more time to find a buyer and get the lender to approve the short sale deal without having to face federal income tax exposure for the deficiency or the “short” between the mortgage amount and the ultimate sales price.
This is due to the Fiscal Cliff legislation that extends the effect of the Mortgage Forgiveness Debt Relief Act of 2007 for one year, or until December 31, 2013.
2. Fiscal Cliff Legislation Does Not Extend Tax Exemption Further Than 2007 Act
In passing the new law today, Washington has given Florida home owners one more year to get a short sale tax break. The remaining language of the Act has not been amended or changed. This is important because in reading about the exemption from income taxation for deficiencies, Florida sellers need to remember that the exemption only applies to certain home sale deficiencies.
The exemption is only available for deficiencies that involve forgiven debt:
- that was used to buy or improve a homestead, or principal residence;
- that was used to refinance debt used to do these things (buy or improve a homestead);
- that was secured by the principal residence; and
- that doesn’t exceed $2 million single or $1 million if married filing jointly.
Larry Tolchinsky’s Tip
It’s true that the Fiscal Cliff legislation puts our Florida Short Sale market in the same pressure cooker next Fall, as the deadline for the tax exemption for deficiencies once again will begin ticking down to its termination date of December 31, 2013. However, right now this is good news and a welcomed bit of breathing room for Florida homeowners because they have been given more time to find a buyer and to get their lender to approve and agree to the short sale and the forgiveness of the deficiency.
Florida housing is far from recovered from the Foreclosure Fraud crisis that hit our state several years ago. Florida home owners only recently have found lenders really willing to work with them on alternatives to foreclosure, particularly short sales. It has only been in the past several months that banks have really welcomed short sales as a foreclosure alternative and a way to resolve defaulting mortgages on their books.
We are not out of the woods yet, as Forbes recently pointed out in its article last week, “Expected Foreclosure Wave Weakened by Short Sale Rip Current.” Based upon many industry experts, the Foreclosure Fraud mess will not be cleaned up within one year’s time and this short term extension of the FIT exemption for forgiven deficiencies will need to be revisited again.