Governor Brown extends mortgage debt tax forgiveness

Before the Great Recession, if you sold your home in a short sale, the seller would have to pay capital gains tax on the difference (i.e. if the seller bought the home for $100 with a 100% loan and sold it for $70, the seller would pay tax on the lender's $30 loss).

The mortgage debt tax was forgiven during the Great Recession and has just been extended.  There may be more short sales coming up, but given the current market in the bay, many of these people may be out of the red and have sold at a marginal loss or broke even...

More info--
http://asmdc.org/members/a31/news-room/press-releases/governor-brown-signs-perea-s-tax-relief-bill-to-forgive-mortgage-debt

7/26/2014 UPDATE: The tax forgiveness extends to homeowners who modified existing loans to decrease the principle.

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