Editor’s note: This is a transcript of the audio file.
The clock is ticking for homeowners considering a short sale.
If you don’t get rid of your mortgage by year-end, you could receive a jaw-dropping tax bill, unless Congress acts. I’m Janet Stauble with your Bankrate.com Personal Finance Minute.
The Mortgage Debt Relief Act, which offers tax exemptions for underwater homeowners, expires December 31. If the law isn’t extended, homeowners will have to pay federal taxes on the balance left on their mortgage after a short sale.
In the eyes of the IRS, housing debt that’s written off or forgiven is the same as income. So without the law’s protection, many homeowners could be hit with tax bills for tens of thousands of dollars.
Congress will likely approve an extension in the eleventh hour. But there’s still a risk, especially with the looming fiscal cliff and pressure the government faces to reduce spending.
So don’t just assume Congress will extend the law. Better to be safe than sorry.
Want to learn more? Log onto Bankrate.com. I’m Janet Stauble.