What
is it and why is it important to the overall health of our housing market?
A short sale is when you sell your home for less than market value and the
lender holding your mortgage accepts less that what you owe them. The IRS
considers this a taxable gain...the forgiveness of a portion of your
debt. But, President Bush and Congress passed a provision back in
2007 that gave homeowners an exemption on having to pay taxes on this type of
transaction as a way to help the housing market emerge from the slump at
that time.
So the above is the "What" and now we address why its
important. The number one headwind for the housing market are
not mortgage rates (which are very, very low), its not employment
(which is tight and stable), its available inventory. There simply aren't
enough single family homes available for sale. Part of that reason is
that a lot of homes are tied up in a "shadow" inventory held by banks
as a result of defaulted mortgages. Part of the reason is that many are
still "under water" on their homes...owing more than it is
worth. Short sales are a way of getting those under water homes back on
the market and providing the much needed new inventory.
Although eight years have passed since the housing crisis began, some 13.4% of
homeowners remain underwater, meaning they owe more than their homes are
worth, according to Zillow, a real-estate information company.
Technically, the tax break expired at the end of 2014, leaving homeowners in
limbo for 2015. Although it is widely expected to pass, if it weren’t renewed,
homeowners who received some relief this year could now take a hit when they
file their taxes next year.
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