It is important to understand that the U.S. tax code treats cancelled and forgiven debts as a form of income, and thus taxpayers become liable for the additional income "received" and must pay taxes on such income.
The Mortgage Forgiveness Debt Relief Act has been a saving grace for many American homeowners who lost their shirt in the recent real estate crisis. Before this Act was enacted in 2007, homeowners would have to pay tax on the amount of debt that was cancelled or forgiven by their lender (unless such debt was discharged pursuant to a bankruptcy proceeding). Without having to file bankruptcy, the current legislation allows homeowners to sell their homes for less than the mortgage amount (which is called a "Short Sale") and not be liable for any federal taxes on the amount of the mortgage that is cancelled or forgiven by their lender. The legislation was drafted in a way that even high income Americans could qualify because it allows up to $2 Million of forgiven debt to be excluded from the homeowner's income.
The good news is that since 2007 and through the end of this year, many homeowners in the U.S. have been able to save thousands of dollars. The bad news is that this legislation is set to expire on December 31, 2012.
If you or someone you know is planning to do a short sale or modify a home loan, I would encourage you to read the link below and to contact a real estate broker to help you figure out a strategy that could save you thousands of dollars.
http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation-
No comments:
Post a Comment