Las Vegas may be in for an economic surprise when the Debt Relief Forgiveness Act ends this December 31, 2012. It is likely to grind the real estate sales in Las Vegas to a halt. Currently nearly 50% of all sales are listed as short sales. This means people are selling their homes for less than what the owe to the bank. For these deals to close the bank has to be willing to forgive a large portion of the balance. Often this is over $100,000. After December 31 home owners will now be expected to show this debt reduction as income on their tax forms. Yes you read that right. Any debt forgiven will be taxed after December 31, 2012.
It will definitely limit the number of people who can afford their payment but are considering short selling to get on with the life. They may realize they are better off staying in their home if selling means they will get a $20,000 tax bill. What is worse? A huge tax bill or a home that is worth half what you owe to the bank? If you can afford the mortgage payment it might be a better idea to stay put and see what happens down the road. The end of the Debt Relief Act will be such a drag on the Las Vegas economy because of its effect on the inventory of homes. It will lead to even less inventory on the market as people will have to stay in their home to avoid the tax liability.
The saving grace will be if people are completely insolvent. If this is the case they can fill out a form showing assets and liabilities to the IRS in order to be exempt from paying the income tax on debt forgiven. You can find a few examples of how to do this here at ConsideritsoldLasVegas.com
Many people will fit this description of their home is far enough under water but keep in my it is not just about your housing debt. If you have a large 401 K it will be considered an asset and could potentially keep you from claiming insolvency.
You can see that Las Vegas Real Estate may not be out of the woods yet and that the market could see some major changes come December 31, 2012.
If you are in the market to buy or sell a home in Las Vegas please give me a call to discuss current market conditions and your best options.