Law helping homeowners set to expire soonPosted: Updated:
FOUNTAIN HILLS, Ariz. -- Home doesn't exactly feel like home to Sandra Powers anymore. She's been living out of boxes for the past several months, not sure when she'll get the final notice to leave.
“I sold all of my dishes,” she said. “Everything’s packed.”
She said she's tried to refinance several times, but for one reason or another it never went through.
But what she and homeowners in similar situations may not know is that it could wind up costing you thousands of dollars more if you wait much longer.
“I'm completely confused on what I should do,” Powers said.
Under the Mortgage Forgiveness Debt Relief Act, homeowners have been able to short sale or foreclose without being taxed by the IRS on the amount they’re underwater.
For example, if you owed $300,000 to your bank and you did a short sale for $200,000, the Mortgage Forgiveness Debt Relief Act prevented the IRS from taxing on that $100,000 shortfall.
But that law expires at the end of this year.
If Powers doesn't short sale or give her house back to the bank by Dec. 31, she'll have to pay taxes on the amount she's underwater. For her, that means a $25,000 tax bill.
“It would devastate me for years,” she said.
Congress can vote to extend the act.
But housing attorney Robert Nagle said there hasn't been much discussion about it yet in Congress and stresses the decision can't come down to the last minute.
Because the clock is ticking for homeowners to finalize a short sale or foreclose before the end of the year, Nagle said you need to decide what you're going to do if you expect to benefit from the Mortgage Forgiveness Debt Relief Act.
“They need to take the bull by the horns,” he said. “They cannot wait and hope they get that notice of sale in time.”
Powers said she's made her decision and plans to put her home up for a short sale in the coming days.
She hopes the deal closes before the end of the year so she can get out without having to pay tens of thousands of dollars more.
3 On Your Side will follow this story and let you know if and when this bill gets extended.