Short Sale Tax Treatment is still in Limbo
Limbo is not a good place to be from a tax standpoint. If you recently sold a home by short sale, read to the bottom and click the link on how to encourage your legislators to make “phantom income” non-taxable.
What will happen next?
The proposed Tax Extender Act of 2017 is supposed to deal with the problem. If passed, this legislation will extend mortgage debt forgiveness through 2019.
It does not appear that Congress has yet come up with a permanent solution to this problem. And even the temporary extension is in limbo in the Senate Committee on Finance, and no action has been taken since December 20, 2017.
Several months ago we wrote:
For every short sale homeowner in 2018, there has been the specter of the IRS imputing as income to them (“phantom income”) the debt forgiven by their mortgage lender. No bills on the horizon to extend the Mortgage Debt Forgiveness Relief Act (originally of 2007, last renewed late in 2016 for 2017). And in the greatest mystery of all — no publicity calling for the extension of the Act from the Real Estate Media, Tax experts, or home ownership advocates.
Perhaps the distraction of the tax code make over by the Trump Administration gave everyone the luxury of a “wait and see” approach. But for those selling their primary residences in 2018 and having the unpaid debt forgiven by their mortgage lender, there are daunting consequences. The rate of taxation has gone down a little under the new tax code, but short selling sellers face tens of thousands of dollars of additional, potential, and mostly unbudgetted tax liability.
Enter House Bill 2543. It is currently in the House Ways and Means Committee. Hopefully, it will undergo some minimal amendments and fly through Congress and the President’s office with bypartisan support. Perhaps someone will have the wisdom to move to extend the Bill to 2020 or at least 2019. Please check back from time to time on the progress of the Bill.
In the mean time . . . if you have a pony in this race, write Representatives Tom Reed (R. of NY), Ron Kind (D of WI), and Joe Courtney (D of CT) to thank them for saying we haven’t forgotten about you! Write your own Senators and Congressmen to demand their support as well!
Find easy contact information for your Senators here: https://www.senate.gov/reference/reference_index_subjects/Directories_vrd.htm.
Find contact information for your elected Representative to the House here: https://www.house.gov/representatives/find-your-representative.