President Bush signed into law the Mortgage Relief Act of 2007. I mentioned the major provisions of this legislation in my blog on Monday entitled "Mortgage Relief Act Passed by Senate." The House left he Senate's version unchanged. He also expected to sign the AMT relief bill.
What does the MRA mean to you? Simply, if your primary residence is foreclosed upon or you do a short sale of your primary residence, then the debt forgiveness (up to $2 million) will not be included in your taxable income. This provision is retroactive to the beginning of 2007.
For real estate investors, this is very good news. It takes away one big barrier that sellers might have to doing a short sale. What's a short sale? Effectively, it's a sale of a house by means of someone (you or the buyer) negotiating a reduction in the note with the lender(s) prior to the sale. The buyer purchases the note(s) from the lender(s) and then buys the house from the seller for an amount equal to the note(s). This prevents the homeowner from the negative effects of a foreclosure and the investor gets the property at a good price.
As I mentioned last Monday, the other major provision of this law is to increase the late filing penalties for partnerships and S corporations. In effect, Congress is giving a gift to one set of taxpayers who were unwise and penalizing other taxpayers who are unwise. All in all, very bad tax policy. Penalty provisions should never be used as revenue raisers. I understand the public policy behind the bailout, but I don't agree with using tax penalties to raise the revenue to pay for it. Just remember to get your partnership and S corp returns filed on time this year (fortunately, the penalty provisions are NOT retroactive).
As for the AMT relief, Congress raised the exemption amount to $66,250 for joint filers. This new exemption is good for one year. They only did this for one year because they did not have a revenue raiser to offset the decrease and the House wanted the bill to be revenue neutral.
I hope you all have a wonderful Christmas. I'm looking forward to spending it with my wife and two grown sons.
Merry Christmas!
Tom
P.S. - I'm still at 173 lbs. At least I haven't gained anything so far during the holidays. More on this later this week.