IMPACT 5: Clock ticking on tax relief act

BOCA RATON, Fla. - Karen Robinson is among the thousands in Boca Raton hit hard by the housing crisis.

"This is the home I expected to live my retirement in," Robinson said. "I was forced, due to economic reasons, to do a short sale."

Short sales are hot right now. The REALTORS Association of the Palm Beaches says short sales account for 25-percent of pending sales in Palm Beach County.

The Mortgage Forgiveness Debt Relief Act makes short sales affordable for families.

Under the rule now, homeowners don't have to pay taxes on any debt the bank forgives on short sales or foreclosures, up to $2 million, as long as it's their primary home. But that's about to change. The act expires at the end of the year.

Jeff Rollage is a tax manager for Caler, Donten, Levine, Porter and Viel.

"Any debt forgiveness is considered income to a taxpayer," Rollage said.

He crunched some numbers for us.

"Just to give you an example, if a bank forgave $45,000 of debt, and let's just say they're in the 28-percent tax bracket. You're looking at a tax bill of about $12,500."

Bill Richardson with The Keyes Company says Washington hasn't taken up the issue yet.

"The National Association of REALTORS and all of your local REALTORS are lobbying the federal government to extend this, but sometimes we win, sometimes we don't," Richardson said.

Robinson will likely avoid a tax bill.  

"You can't draw blood from a stone, so I'd have to deal with whatever kind of consequences there were," Robinson said.

Her short sale should be finalized by the end of the year.

For others, the clock is ticking.

"You have the opportunity to get out of a bad situation and live to fight another day," Richardson said.

Short sales take on average three or four months to complete.

To read more about The Mortgage Forgiveness Debt Relief Act click here .

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