The Mortgage Forgiveness Debt Relief Act

The Mortgage Forgiveness Debt Relief Act of 2007

Time is running out for upside down homeowners to take advantage of the short sale benefits that the act provides.

The Federal Mortgage Forgiveness Debt Relief Act of 2007 is scheduled to run out on 12/31/2012. This debt relief act gives the homeowner who has had to pursue a short sale or a loan modification or a foreclosure, the ability to avoid paying taxes on the loss to the banks.

If you are considering a short sale on your home or a loan modification or have decided on the option of a foreclosure – don’t wait too long to initiate a solution or you could find yourself facing a huge tax bill.

If you have a home that goes to foreclosure or decide that the better option of a short sale is in your best interests, the difference in what you owe on the home (plus foreclosure costs of sometimes up to $50,000 and legal fees incurred by the bank) and what it sells for, is considered by the IRS as normal income received by you. The lender reports this loss in the form of a 1099 to the IRS and to you.

As a homeowner, you have had to suffer the loss of your home thru the short sale process or thru foreclosure– and if you wait too long – on December 31, 2012, the lenders right to make you pay taxes on the difference will swing back into effect – and you will lose out on the short sale benefits it provides.

The Debt Relief Act was signed in to law to protect struggling homeowners from incurring tax deficits after losing a home, and the guidelines state:

• Maximum of $2 million of debt forgiven between Jan. 1, 2007, and Dec. 31, 2012.
• The forgiven debt is only allowed on a principle residence – lived in two out of the last 5 years
• A home equity line of credit may qualify if the loan was used to improve your principle residence

A short sale does take several months to complete – so if you need to avail yourself of the short sale option – now is the time to act. Don’t lose out on the Debt Relief Act by waiting too long.

Denver Short Sale Realtors share short sale benefits