NEW YORK (IRS.com) — One part of the fiscal cliff that was extended will provide at least one more year of a key housing and tax benefit for homeowners that are underwater in the mortgages.
On Thursday, President Barack Obama signed The American Taxpayer Relief Act, which extends the deadline of the Mortgage Debt Relief Act to Dec. 31, 2013. If the Mortgage Debt Relief Act had expired, any amount of canceled debt would be considered taxable income for IRS purposes. The Mortgage Debt Relief Act was set to expire Dec. 31.
With the new extension, homeowners now have less than 12 months to take advantage of this tax relief. And while that may seem like a long time, keep in mind that short sales can take up to six months (or more) to complete. A loan modification or a deed-in-lieu of foreclosure can take at least three months to go through. And a foreclosure can take up to a year to finalize.
The current housing market has a reported negative equity gap of approximately $3.7 trillion. This number reflects the millions of homeowners who are underwater on their mortgages and owe more than their home is worth.
Charles Engel, the vice president of RealtyTrac, recently said, “Even if [these] homeowners aren’t struggling to make mortgage payments and therefore are at low risk for foreclosure, if they need to sell sometime in the next five years it’s likely they’ll need to sell via short sale.”