Wednesday, June 18, 2025
70.4 F
Roseville

Time Running Out on Short Sale Tax Break

There are four months remaining before the Mortgage Forgiveness Debt Relief Act of 2007 expires.    There are members in Congress who are pushing to extend the debt forgiveness relief provision which expires at the end of the year.  The argument is failing to extend the tax relief will result in massive tax liabilities for taxpayers already under water on their mortgages.  The extension is said to have bipartisan support but with the current state of the economy and growing deficit there are no guarantees, especially in an election year.

The Mortgage Debt Relief Act of 2007 allows taxpayers to exclude up to $2 million of forgiven debt on their principal residence in calendar years 2007 through 2012 as long as the discharge of debt is directly related to a decline in the residence’s value or in the financial condition of the taxpayer. 

- Advertisement -

2025 Placer County Fair in Roseville!

Placer County Fair

There is still time but if you are thinking about a short sale of your home, you must act now to avoid paying taxes to the IRS on any debt forgiven as a result of such a sale.  With the low inventory levels of homes for sale in the Sacramento area combined with growing number of buyers and lenders who have streamlined their short sale approvals there is still time to act if you or someone you know is underwater and is considering a short sale.

When a short sale is completed in California the lender is required to forgive the remaining loan balance.  However, the IRS normally treats this forgiven debt as taxable income. The Mortgage Forgiveness Debt Relief of 2007 relieves struggling homeowners from having to pay taxes on forgiven mortgage debt if they sell.

The property has to be your primary residence and you have to close on the short sale on or before Dec. 31. The exact reading from IRS Publication 4681 states, “You can exclude canceled debt from income if it is any mortgage you took out to buy, build, or substantially improve your main home.” This means that any first mortgages you took out to purchase or build your home, as well as any subsequent loans you received where you used the proceeds to improve your home, can be forgiven.

When you can’t keep up with your mortgage payments or have a verifiable need to sell a home for less than the mortgage balance, a short sale is an option homeowners have in order to avoid foreclosure.  Most people choose to do a short sale instead of a foreclosure because it has less negative impact on a credit report compared to a foreclosure, which may follow the homeowner forever.  Also, if you wanted to obtain a home loan again in the future, lenders view having a short sale on your record more favorably than they do a foreclosure.

Right now time is of the essence if you want to both short sell your house and avoid having to pay the IRS and Franchise Tax Board any tax on your forgiven mortgage debt.  With four months to go and no guaranty the act will be extended it is very possible to accomplish this goal if you work with an experienced short sale Realtor.

Naturally I always recommend talking to a tax professional to make sure you qualify for the tax exemption on forgiven mortgage debt.

The reason this act is important in today’s housing market is that, without the act, debt reduced through mortgage modifications or short sales qualifies as income to the borrower and is taxable. 

- Advertisement -

2025 Placer County Fair in Roseville!

Placer County Fair
TICKETS HERE! - Placer County Fair

In Roseville starting June 26th!

Support local sports!

🍎 Gravenstein Apple Fair

Trending

New Kia K4 delivers in many areas

We recently spent a week with the all-new 2025 Kia K4, a compact sedan with some impressive credentials. The K4 replaced the Forte, which went out with a bang,

Roseville Iron Rose FC Soccer final game of season happens June 28

Roseville, Calif. - Iron Rose FC kicks off its second season with both a women’s and men’s team competing in the WPSL and TLFC. After a successful women’s season last year the men join the club in 2025.

Roseville Summer Youth Bus Pass: Just $10

Roseville, Calif. - This summer, kids in southern Placer County can zip all around town with the Summer Youth Bus Pass. The Summer Youth Bus Pass is the perfect way to get to summer jobs, the mall, movies, and other summer activities.

Blue House Korean BBQ in Roseville

Blue House Korean BBQ on Douglas Blvd in Roseville, Calif.

CycleLife in Rocklin

Elevate your indoor cycling experience at CycleLife in Rocklin. CycleLife is the newest premium group indoor cycling studio in the area. We offer spin classes & a variety of cycling group sessions. Indoor cycling class is a great way to get fit & enjoy a fun workout. Come visit CycleLife here in Rocklin.

Topics

New Kia K4 delivers in many areas

We recently spent a week with the all-new 2025 Kia K4, a compact sedan with some impressive credentials. The K4 replaced the Forte, which went out with a bang,

Roseville Iron Rose FC Soccer final game of season happens June 28

Roseville, Calif. - Iron Rose FC kicks off its second season with both a women’s and men’s team competing in the WPSL and TLFC. After a successful women’s season last year the men join the club in 2025.

Roseville Summer Youth Bus Pass: Just $10

Roseville, Calif. - This summer, kids in southern Placer County can zip all around town with the Summer Youth Bus Pass. The Summer Youth Bus Pass is the perfect way to get to summer jobs, the mall, movies, and other summer activities.

Blue House Korean BBQ in Roseville

Blue House Korean BBQ on Douglas Blvd in Roseville, Calif.

CycleLife in Rocklin

Elevate your indoor cycling experience at CycleLife in Rocklin. CycleLife is the newest premium group indoor cycling studio in the area. We offer spin classes & a variety of cycling group sessions. Indoor cycling class is a great way to get fit & enjoy a fun workout. Come visit CycleLife here in Rocklin.

Taqueria Roberto Mexican Food in Rocklin

Authentic Mexican Food where breakfast, ​lunch and dinner is served all day.

Roseville’s commitment to the pursuit of technological excellence: Part 3

Roseville, Calif. – Today in part 3 of a 3-part series on the City of Roseville’s pursuit of technological excellence, guest contributor Ivan Farkas highlights Roseville's recent tech achievements and awards.

$3.7M cleanup coming to former Lincoln gun range

Lincoln, Calif. - The Placer County Board of Supervisors recently took action to approve plans and specifications for lead remediation of the former Lincoln Gun Range, and authorized staff to bid the project out to contractors for up to $3.7 million.

Related Articles

Local Spotlight

California Fence and Patio serving Placer County for over 30 years

Loomis, Calif. - California Fence & Patio is proud of their reputation as the premier fencing and patio cover contractor in the Roseville,, Sacramento and Placer County region.

California Recovery Center in Roseville offers treatment for substance abuse and mental health

California Recovery Center (CRC) is a treatment provider for adults with substance abuse and mental health condition, located in Roseville and serving the greater Sacramento region.

Making a Splash in Roseville at Steve Wallen Swim School

Roseville, Calif. - Steve Wallen Swim School in Roseville teaches swim lessons and water safety for infants, kids, and adults of all skill levels.