The expiration of the Mortgage Forgiveness Debt Relief Act of 2007 is coming at the end of 2013. Many people in California have wondered how the expiration of that act would affect people who needed to use a short sale to get out from under an underwater mortgage. In many cases, the expiration of the act isn’t going to affect homeowners who sell using a short sale.
Under the act, any difference in the sale amount for a short sale on a residential property and the actual mortgage amount owed to the mortgage holder wasn’t taxable since it was considered phantom income.
While the expiration of the act will affect people who are doing short sales on secondary homes, it won’t affect those who are doing short sales on primary homes. The forgiveness of mortgage debt for a primary home that is the result of a short sale is considered to be nonrecourse in California, which means the deficiency isn’t due to the lender.
This is excellent news for Californians who are considering using a short sale to get out of an underwater mortgage because they won’t be faced with a large tax bill for the forgiven amount of the mortgage.
If you need to take advantage of a short sale and this California tax break, contact Eastland Escrows for information.