Owning a home is a big financial responsibility, since you have to pay for the mortgage, upkeep, taxes and other expenses. For some homeowners, the financial burden might get larger this year because the Mortgage Debt Forgiveness Act was allowed to expire at the end of 2013. Texas homeowners might be interested in this development so they can learn if it will affect them.
Under that act, homeowners who sold a home for less than the mortgage balance weren’t required to pay taxes on the difference. With the expiration of the bill, homeowners who use a short sale to sell a home with an underwater mortgage, as well as those who go through a mortgage modification that lowers the balance due, will be responsible for paying taxes on the forgiven amount of the mortgage. For example, if a home that has a $100,000 mortgage is sold for $80,000, the seller would be responsible for paying taxes on the $20,000 difference.
It is estimated that as many as 6 million homes across the nation have negative equity. While that number is an improvement over the high of 11 million, it is still a significant number of homeowners who may be affected by high tax bills if they do sell their home for less than the mortgage balance.
If your home has an underwater mortgage, selling it might still be a viable option even considering these property tax changes. Consulting with a Texas attorney who has experience in this type of tax law might be able to help you understand how selling your home will affect you.
The Washington Post, “Underwater homeowners could face extra tax burden in 2014” Amrita Jayakumar, Dec. 25, 2013