Mortgage Debt Relief and Taxes

 The Mortgage Debt Relief Act is set to expire at the end of 2012. This is the law that may exclude from taxation qualifying debt forgiven at the conclusion of short sales. Although it is possible that this law will be renewed, no one knows for sure.

 For some time now, emails have circulated suggesting that the federal health care law will impose a 3.8% federal tax on the sale of all homes. The emails are terribly misleading – the tax referred to is neither a real estate transfer tax or a sales tax. Instead, it’s a 3.8% tax increase on capital gains (and other unearned income) for individuals with adjusted gross income over $200,000 (or $250,000 for married couples filing joint returns). In addition, the normal capital gains exclusions that we work with every day still apply – which in most cases means no tax on the sale of principal residence (assuming less than $500,000 gain under a joint return, $250,000 for an individual return). In the end, a small percentage of homesellers will be affected by this new tax. See my previous blog article.

For more information on the Mortgage Debt Relief Act

For more information on the capital gains tax