Monthly Archives: November 2012
With the election over, and President Obama serving another four years, there is discussion now about whether a certain tax break will be extended in order to help homeowners who have experienced a short sale or foreclosure.
In 2007, the Mortgage Forgiveness Debt Relief Act was implemented to forgive the debt of tax payers who experience foreclosures, short sales, or principal reduction. As stated by the IRS, “The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.”
When is this act expiring? The Mortgage Forgiveness Debt Relief Act is set to expire at the end of this year. If this should happen, there will be many homeowners who will be paying a tax on their unforgiven debt. For example, if you short sale your home for $100,000 and you owe $200,000, you would be required to pay a tax on the $100,000 difference of what you owe.
According to CNNMoney, there are about half a million short sales occurring each year, and 50,000 foreclosures each month. This is a great deal of borrowers that will be affected if this relief act is not extended after 2012.
Now, what would it cost to extend this relief act through the end of 2013? According to the office of Sen. Max Baucus, the estimated cost is $1.3 billion. The original bill was $25 billion in order for banks to forgive homeowners mortgage debt.
However, back in August 2012, the bill made it through the senate finance committee, as a bipartisan bill was passed to extend the act through the end of 2013. Now we just have to wait and see if it continues to pass through government.
Now, if the act is not extended there are certain homeowners that may be protected from paying the tax such as Californians. According to CNNMoney, California borrowers would be protected from paying the tax due to how California handles foreclosures.
Hopefully we will know more about the Mortgage Forgiveness Debt Relief Act as the year comes to a close.