The Seller needed to close by 12/31/2013 in order to be protected from paying taxes on forgiven debt on a primary residence. There have been some recent developments that indicate that Congress may still extend the Act and make it retroactive to January 1st, 2014.
Attorney at Law
Robin, thanks for your response. In years past when the extension was on the table and not yet signed in to law there was always a grace period that extended in to the following year by about 3 months to allow those contracts that had been signed in the year the Act was active to be closed and thereby included under the Act. So is 2013 the only year that the grace period did not exist? Not doubting you, just clarifying. Rich
You're thinking of the First Time Homebuyer Tax Credit, Rich. They gave a grace period on that. This is a different animal and is tied directly to the tax year.
The MDRA never had a grace period, it was always close by 12-31 of xxxx year.
HAFA had some "contract by" dates, with a few months to close, when it was about to expire.
Had to close by December 31, 2013.
It must close in the year that the acts end. In this case 2013, unless congress make the extension retroactive to January 1, 2014.
The IRS issued a letter on this issues that basically says that people do not owe if they have non recourse loans ... check the National Association of REALTORS website or the California Association of REALTORS website for the letter .. in CA the Franchise Tax Board issued the same kind of letter ... hope this helps
Hopeful good news is that on Tuesday a bill was introduced in congress to extend the act for another 2 years. Keep your fingers crossed!
Most people doing short sales have recourse loans because they refinanced or pulled cash out.
Rich - If it's a California property being sold after 7/11/11, all mortgage loans became non-recourse loans no matter what "position", 1st, 2nd, HELOC, etc. - also doesn't matter if primary, secondary or NOO investment property.
I am not an Attorney or CPA. This is not intended to be legal or tax advice but the information is based on information provided by C.A.R., the CA FTB and the IRS. All borrowers in a short sale should seek legal and tax advice from the appropriate individuals.