'Fiscal cliff' cuts will hurt almost everyone

Published On: Dec 24 2012 05:01:31 PM EST
Updated On: Dec 24 2012 10:13:10 PM EST

It will be Thursday before talks resume to try to resolve the fiscal cliff. Along with the Fiscal Cliff, you've probably heard your taxes will go up if congress doesn't act soon.

Just over a week before the so-called fiscal cliff, people -- including the president and members of Congress -- are thinking more about their holiday than the looming tax hike and economic hardships that could come in the new year.

But after the gifts are opened and dinner digested, it will be time for negotiations in Washington to resume.

If a deal isn't reached, the payroll tax rate for just about everyone will go up and several tax breaks will go away.

One of the biggest breaks will be the tax on forgiven debt. This will cost the thousands of people using a "short-sale" to buy an under-valued home. This tax forgiveness became law in 2007, and is partly responsible for the recovery in the housing market.

David Elian is a Realtor who says a lot of clients who are trying to sell their homes are hoping lawmakers extend that tax break.

"It's a hard time for anyone doing a short sale. It's a hard time for anyone losing their primary residence," Elian said. "We just try to disclose it may cause a taxable event for them at closing on next year's taxes."

Elian this could cost the average homeowner making such a sale about $10,000, and will likely send many more homes into foreclose as owners just walk away from their mortgages.

Negotiations in Washington are expected to resume on Thursday, and many observers are not optimistic that a deal will be reached by Dec. 31.

"I think it will expire because Congress is focusing on bigger picture now: $700 billion in tax cuts," said Joe Krier of Krier Wealth Management. "So some of these smaller ones are going to go by the wayside."

Among those other breaks that would disappear if no agreement is reached are tax credits for adoption and college tuition.

Some believe that while such changes will be painful, they are necessary.

"We absolutely need to cut spending and cut taxes," said Billie Tucker of the First Coast Tea Party.

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