A federal tax law that gives assistance to homeowners is set to expire, and if it does, there may be fewer houses for sale in Los Angeles.
Under the current law, homeowners don’t get taxed if they sell their home for less than what they owe, or have part of their mortgage forgiven during a refinance.
If the provision expires at the end of the year, however, homeowners who close a short sale in 2014 will get a big tax bill for the forgiven debt, which will be taxed as normal income.
A 2011 California law currently protects homeowners in the state from this federal tax. However, that law, just like the tax credits, could change at some point in the future. There are several other tax benefits for homeowners, like tax credits for energy efficiency home improvements, which are also set to expire.
If these tax breaks are not renewed by Congress, many homeowners will hold on to their underwater properties instead of selling them. This will mean fewer Los Angeles homes for sale and could push many at-risk homeowners into foreclosure.
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Photo courtesy of the LA Times.