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Will short sellers still get a tax break?

WASHINGTON – Dec. 16, 2015 – Congress has yet to decide whether to renew a policy that relieves the tax burden on homeowners who unload their property for less than what is owed on the mortgage through a short sale.
The tax break for short sellers expired at the end of 2014, putting 2015 short sale homeowners at risk for higher than planned federal income taxes. The same was true at the end of last year, though Congress passed a bill offering relief as 2014 died down. However, that forgiveness did not extend through 2015, and a new authorization bill must be passed and signed to help this year’s short sellers.
Without a bill protecting short sellers, the U.S. tax code considers any money forgiven by a lender as income to the recipient. If a bank forgives $30,000 because the homeowner owes that much more on the mortgage than the home’s current worth, for example, that $30,000 will be considered income for tax purposes.
The lack of short-sale tax protections isn’t unique to real estate. Lawmakers tend to wait until the last minute to renew dozens of so-called tax extenders.
The bill recently introduced into Congress, however, would extend short sale tax protection through 2016, giving homeowners an incentive to privately sell their home rather than going through foreclosures. And without the tax break, homeowners have an incentive to let their homes go into foreclosure, real estate agents warn.
A tax forgiveness bill effective through 2016 would forgive an estimated $5.1 billion of taxes for homeowners, most of whom are still reeling from the foreclosure crisis. 
In addition to helping short sellers, homeowners granted a principal reduction by their lender would also be impacted.
Source: Wall Street Journal (12/14/15) P. A8; Kusisto, Laura
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Source: Florida Realtors Feed

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