Late last night, Congress reached a settlement in the “fiscal cliff” negotiations. As a result, the Mortgage Forgiveness Debt Relief Act was extended for another year. The measure will continue to exempt from taxation mortgage debt that is forgiven when a homeowner and their mortgage lenders negotiate a short sale, loan modification (including any principal reduction) or foreclosure. REALTORS® should tell their clients to keep their short sales on the market and encourage them to consult with their own tax advisers about their tax situation.
Fiscal Cliff settlement also will allow capital gains rates to rise from 15% to 20% for high-income earners. However, capital gains rates on the sale of principal residences will remain unchanged and continues to exclude the first $250,000 for single taxpayers and $500,000 for married couples.