S. 2250 The Mortgage Forgiveness Tax Relief Act

Historically, debt cancelled or forgiven as part of a mortgage restructuring, default, or foreclosure proceeding is treated as taxable income.  In 2007, Congress enacted legislation providing a temporary tax exclusion of up to $2 million for income derived from forgiven mortgage debt.  After a subsequent extension, this tax exclusion is set to expire at the end of 2012.  S. 2250 was introduced by Senator Debbie Stabenow (D-MI) to extend the tax exclusion for forgiven mortgage debt through the end of 2014.In recent years, Congress has passed a number of legislative packages known as “tax extenders” to extend expired or expiring tax provisions that are used by businesses and individuals alike.  On August 2, 2012, the Senate Committee on Finance approved the Family and Business Tax Certainty Act of 2012, which included a number of these tax extenders, including a one year extension of the tax exclusion for forgiven mortgage debt through 2013.

It is not presently clear whether Senate Majority Leader Harry Reid (D-NV) will put either S. 2250 or the broader package of tax extenders on the Senate calendar during the upcoming lame duck session.

It’s time to be writing to our elected officials. If S. 2250 or something similar is not passed by the end of the year, any debt forgiven in a short sale will become taxable income for the seller.

Photo licensed from iStockPhoto | Source: Senator Kay Bailey Hutchison

Mortgage Forgiveness Debt Relief Act May Be Extended Through 2013

Short SalesSome good news from Washington today. According to the Daily Herald:

“A bill that would extend the Mortgage Forgiveness Debt Relief Act through 2013 has been passed by the Senate Finance Committee and advanced to the full chamber for possible action next month. The law spares homeowners who receive principal reductions on their home loans from being hit with hefty federal income taxes on amounts forgiven, extends tax write-offs for mortgage insurance premiums, and continues some energy-efficiency tax credits for remodeling and new home construction. The extension could affect millions of homeowners who are underwater, late on their payments and headed for foreclosure, short sales or deeds-in-lieu of foreclosure.”

This is great news for homeowners facing foreclosure or trying to complete a short sale of their primary home.

Photo Licensed from iStockPhoto

The Act has been extended. http://www.thebranchteam.com/wordpress/2013/01/02/mortgage-forgiveness-debt-relief-act-extended/

Thinking About a Short Sale? Tax Relief Ends in 2012

Short SalesYou may think Short Sales were created in response to the housing market meltdown in 2007, but they have been around for years.

As Gina and I wrote in our book, The Field Guide to Short Sales, “They have not been widely used in the past for two reasons:

1. The lender could seek a deficiency judgment against the borrower for the amount of the loss. Laws vary from State to State, but the lender was able to garnish wages, engage a collection agency to collect the debt, or seek other legal relief.

2. The lender can elect to forgive all or a portion of the mortgage balance. However, until 2007, the amount forgiven became taxable income. The lender simply issued an IRS Form 1099 to the borrower. The tax implications were dramatic. If the lender forgave $100,000 and issued an IRS Form 1099 to the borrower for the same amount, the borrower potentially wound up owing the IRS tens of thousands of dollars depending on their tax rate.

The Mortgage Forgiveness Debt Relief Act was a major piece of legislation passed by Congress and signed into law by President George W. Bush. The Act offered relief to homeowners, who, after a Short Sale, owed taxes on the forgiven mortgage debt. This relief is great news! Most homeowners no longer have to pay taxes on that forgiven debt. The Act applied to debts forgiven between 2007 and 2009, but was extended through 2012 by the Economic Stabilization Act of 2008.”

Unless Congress takes action to extend the Act, the relief from paying Federal taxes on forgiven debt will expire on December 31, 2012. This could end up costing a distressed homeowner tens of thousands of dollars in Federal taxes.

If you are considering a Short Sale, you may want to get started quickly. Given the time it takes to get the sale approved and the buyer to close, time is quickly running out.

Want to talk to a real estate team with a proved track-record and knows how to get them done? Contact us at 214-227-6626 or visit our website at www.ntxshortsales.com.

Photo licensed from iStockPhoto