A slate of expired tax breaks and extensions that Congressional infighting has left unrenewed could hit homeowners who had short sales with massive tax bills.
Without Congressional action to renew the breaks, those whom banks allowed to sell their homes for less than the amount of their mortgage would have to pay taxes on the forgiven mortgage debt as if it were income.
Short selling became common after the housing crisis started, with homeowners who were unable to pay their monthly mortgage bills even as the value of their homes dropped.
RealtyTrac estimates that in the first three quarters of 2014, there have been more than 170,000 short sales representing a mortgage debt forgiveness of $8.1 billion total. The average short sale has a mortgage forgiveness of about $75,000, which if the tax break expires would be counted as income.
“I just think it’s unfair and I think most would concur that it’s unfair that individuals would have to pay taxes on income that they have never received,” said Sen. Dean Heller, R-Nev., at a Senate Banking Committee hearing.
The exemption for mortgage forgiveness is rolled into a package of tax bill exemptions totaling $85 billion — some popular, but some viewed as frivolous and as payouts to special interests.