'Sota taxpayers expect to pay more for home foreclosures
Minnesotans may be tapped for more taxes because the last legislative session failed to notice changes in the federal government’s tax code. It’s more than just an oops. It could spell more pain for those who had to face foreclosure or short sale. Even those who refinanced their homes in 2013 will be taxed by the state, but not the federal government, for the debt that was discharged by foreclosure of sale.
How’s that? Well it seems as though the United States Congress did something in its last session that gave a number of tax breaks and or extensions for taxpayers in 2013. However, Minnesota’s legislative brain-trust failed to follow the lead of the federal government.
In other words, state tax code does not line up with the federal tax code.
What does that mean? It means that someone whose short sale on a $600,000 property that actually sold for only $200,000 will cost the homeowner more than $10,000 in state taxes. If that same homeowner had sold via short sale in 2012, the taxes on that sale would not exist.
Well, can’t the Minnesota Legislature make the change next legislative session? Sure. However, that won’t remedy those who wind up paying for the state legislature’s screw up.
It all stems from the Mortgage Forgiveness Debt Relief Act. Under the act, homeowners were able to write off up to $2 million of debt on that primary residence. Those tax breaks were set to expire this year, but the U.S. Congress gave the measure a one year extension. That extension will expire on Dec. 31, 2013.
Minnesota’s House of Representatives passed a conformity bill during its last session, but the Minnesota Senate failed to push the bill along and did not pass legislation that would have avoided such a calamity for residents already facing a tremendous setback.
Gov. Mark Dayton thinks there might be a solution: “Anybody who’s had the misfortune of having to sell a $600,000 home for $200,000 certainly shouldn’t have to pay taxes on a paper loss that’s somehow counted as income,” he said. “I’m very willing to look at what we can do the next legislative session to retroactively exclude that income from state taxation.”
Nothing like closing the barn door after the horse is out of the barn.