As the economy has steadily improved, tax breaks designed to help underwater homeowners have expired. Unless lawmakers extend The Mortgage Forgiveness Debt Relief Act another year at this late hour, the consequence for a short sale has worsened. At Bullock, Garner, & Leslie we’re your Melbourne FL CPA firm to help you manage these tax law changes.

Underwater homeowners lost their available tax break on December 31, 2013 when the Mortgage Forgiveness Debt Relief Act expired.  President Bush signed the Act into law in 2007, offering an exception to the rule that forgiven debt would be treated like taxable income. Under the law, qualifying homeowners could exclude forgiven debt on a private residence that was the result of a renegotiated mortgage, short sale or foreclosure. Now, that debt is reportable – and taxable – as income.

That means that if your home sold as a short sale on December 31, 2013 and was $58,000 short, you owe nothing. If that same home sold January 1, 2014, you’d have to report that $58,000 as income and pay taxes on the “earnings.” Depending on your tax rate, that could mean you’d owe $10,000-$25,000 in taxes.

If you’re dealing with a foreclosure or short sale in 2014 and want to discuss your tax liability, give us a call today. At Bullock, Garner, & Leslie, we can help!