Phantom Tax: Time to Disappear

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S.1394 - Mortgage Cancellation Relief Act of 2007 A bill to amend the Internal Revenue Code of 1986, to exclude from gross income of individual taxpayers discharges of indebtedness attributable to certain forgiven residential mortgage obligations.

For some of you, this is a must read. Let me tell those of you who must read this: Anyone who will be selling via short sale or anyone who knows someone who will be selling via short sale.

As I've alluded to in the past, in a short sale where Johhny sells his house for $345k and he owes $375, he has what is called a taxable event. The IRS looks at the difference of $30k as regular income and is taxed accordingly.

And this is really a bad situation when the market has tumbled in new homes (where prices have spiraled downward) and Johnny bought at the top.

OK, we have Johnny who is being responsible and doing the right thing to get his finances in order (let's forget the mistakes he made in getting into the house). So, he's facing foreclosure and possible bankruptcy down the road if something doesn't change, which is why he is selling. Now the government is taxing Johnny on something it considers income (Phantom).

So Johnny has to sell his home to save his finances...and the man comes along and taxes him on something he didn't really make: income.

Screwed up, I know.

Which is why you (if you are one of the persons I am writing to) should call your Senator and ask he/she to push for a vote on S. 1394, the Mortgage Cancellation Relief Act of 2007.

The House of Representatives has passed a bill. I fully expect the President will sign a compromise bill that comes out of both bodies, but not unless the Senate acts.

If you don't know your Senator's number, find them on www.senate.gov or call the switchboard at 202-225-3141.

Read the Northern Virginia Association of Realtor's statement on the issue.

Jon J. Tripp
More Than Just a Realtor®
www.jontripp.com