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End of mortgage-fix break could mean big tax bills

A tax break for struggling mortgage borrowers ends Jan. 1 and that could mean big tax bills — and financial hits for their neighbors.

Say a family is behind on their mortgage and the bank cuts them a deal, maybe reducing the loan principal or forgiving the mortgage balance after a “short sale” in which the seller owes more than the final price.

Under traditional IRS rules, the amount of that debt forgiveness would be taxable income.

That temporarily changed in 2007 when Congress passed the Mortgage Foreclosure Debt Forgiveness Act. That law is set to expire at year’s end.

A return of the tax could affect many of the nearly 10 million Americans who owe more on their loans than their homes are worth, according to the National Association of Realtors (NAR).

In a short sale, if a property with a $400,000 mortgage sells for $250,000, the forgiven debt of $150,000 will be taxed after Jan. 1. The hit could top $35,000. 

Consumer advocates consider the tax unfair: “The money being taxed was ‘phantom income’ that existed only on paper,” said Elyse Cherry, CEO of Boston Community Capital, a non-profit, neighborhood stabilization group.

It will also damage foreclosure-prevention efforts, said Cherry. Many at-risk homeowners could not participate in programs if a big tax bill accompanies the fix.
“The program only works when we can save homeowners money,” she said.

Chances of passing an extension before the year’s end seem slim, according to J.P. Delmore, an assistant vice president for government affairs at the National Association of Home Builders.

The best hope is that Congress will gets its act together sometime in 2014 and extend the tax break retroactively to the beginning of the year, he said. Even that may be a challenge, given the current climate in Washington


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Joseph Sabeh Jr.

Please let me introduce myself, I am Joseph Sabeh, Jr a full time licensed professional realtor. I have been with Executive Homes Realty for over 13 years and was trained by my late father and Broker, Joseph Sabeh. I recently incorporated the company and we moved the office to 43513 Mission Blvd just last summer. I could not have found a more honorable place to work. After earning my experience selling high end Ralph Lauren suits and studying business management in southern California, I decided to pursue my dream of selling real estate and working with my father. He had already had such an excellent reputation and established a niche market of high end clientele that catered to the very best. I wanted to become the consummate professional just like him and have strived to become just that being just a phone call or email away from getting back to my client’s immediate needs! Known by my clients for my tenacity, perseverance , and excellence in negotia- tion(Certified Negotiation Expert), I have always strived to meet my clients high demands and goals. As a result of my professionalism, I have achieved an extensive portfolio of referrals from past and present clients. I credit my current values from my upbringing of my parents and the credit is due to them without question. Their integrity, pride, and willingness to sacrifice for the better of my life and my sister’s always left a mark on me that one day I will pass on. Their desire to achieve a better life and live it to the fullest is one that some families dream of and I certainly am appreciative of all of the education and etiquette I have learned from them both. I have sold condos up to 3.2 million dollar homes and I am here for any and all of your future real estate needs and wishing you the very best experience in your future real estate endeavors with me.

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