Macomb County, MI
As part of tax bill H.R. 8, which addressed the so called “fiscal cliff,” On January 1, 2013, Congress passed an extension of the Mortgage Forgiveness Debt Relief Act of 2007.
For distressed homeowners, the extension of this act comes as welcome news, as it means foreclosure alternatives, such as loan modifications and short sales, will continue to be valuable options free of tax penalties on forgiven debt.
This report details how the extension of the Mortgage Forgiveness Debt Relief Act will save homeowners thousands in taxes, and what to do if you or someone you know find yourself facing the possibility of foreclosure.
What Is The Mortgage Forgiveness Debt Relief Act?
The Mortgage Forgiveness Debt Relief Act was originally passed in 2007 to aid the millions of homeowners who suddenly found themselves in danger of losing their homes to foreclosure following the housing market crash.
Under the Mortgage Forgiveness Debt Relief Act, any debt forgiven in a short sale, foreclosure, or loan modification is exempt from federal taxes.
Here’s how the process worked before the Mortgage Forgiveness Debt Relief Act:
• A homeowner found that he or she could no longer afford his or her mortgage. At risk of default and foreclosure, the homeowner was able to negotiate with the bank an option that avoided foreclosure (most likely a short sale or a principle reduction).
• The bank was legally required to report the amount of debt forgiven or cancelled to the IRS.
• The IRS labeled this amount as “income.” Even though the homeowner was never given any cash from the bank, it was considered income because it was a credit issued to the borrower from the bank that didn’t previously exist.
• The homeowner was now responsible for paying income tax on this amount, which could amount to thousands of dollars. With the recent extension of the Mortgage Forgiveness Debt Relief Act, eligible homeowners will continue to remain exempt from these taxes, saving them from paying thousands, or even tens of thousands, in taxes on top of losing their homes.
Frequently asked questions:
When does the Mortgage Debt Relief Act Expire?
December 31, 2013.
How much debt can be forgiven?
$2 million ($1 million if you are married and filing separately.)
Does this apply to any debt that is forgiven?
No, the Mortgage Debt Relief Act applies only to debt forgiven on your primary residence.
Who determines how much debt is forgiven?
The lender is required to report any forgiven debt that is over $600.
Will it be reported on my credit?
If a foreclosure was started, then it probably will be, although a short sale will be less impactful than if the foreclosure is completed.
If you or someone you know is underwater on their home and needs to sell it, please contact me directly at 586-438-3038. There is no cost or commission paid by the homeowner who needs to sell with a Short Sale! Please visit my website: http://www.doloresgaskell.com for more information about Short Sales.
Dolores Gaskell, Broker/Owner
Certified Distressed Property Expert
Macomb Metro Realty, Inc.
Chesterfield, MI 48047
Direct Dial: 586-438-3038