A soon-to-expire tax
break for troubled homeowners is helping drive a spurt in "short
sales."
During the three
months ended Sept. 30, short sales in which homeowners had fallen behind on
mortgage payments soared 22% over last year, according to a report released
Thursday by online marketing company RealtyTrac. By comparison, short sales by
people current on their payments went up 17%.
In a short sale, homeowners sell at a price that is less
than what they owe the bank, and the bank agrees to absorb the loss. The bank
unloads the house and the homeowner gets out of a mortgage he can't afford.
And currently, homeowners don't have to pay federal tax on
the unpaid mortgage debt because of a bailout-era law known as the federal
Mortgage Debt Forgiveness Act.
But the act expires on Dec. 31 and, unless it is extended,
the IRS in January will start treating unpaid mortgage debt as taxable income
for many borrowers. The average amount of forgiven debt in a short sale is
about $95,000, according to Blomquist. The tax on that could go as high as
$33,250, even more if the Bush tax cuts expire.
Related: Perils of
going over the fiscal cliff
So real estate agents
are pushing to get short sales done by the end of the year, worried that if
they don't, deals will fall apart with the prospect of big tax bills, according
to Daren Blomquist, vice president of RealtyTrac.
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