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Mortgage Forgiveness Debt Relief Act Expires in 2012
The clock is ticking for homeowners who owe more on their home than it’s worth and are thinking about doing a short sale.
The Mortgage Forgiveness Debt Relief Act, which allows most homeowners to do a short sale without being taxed on the debt forgiven, is expiring at the end of 2012. This means if you are planning on doing a short sale and the sale is not completed in 2012, you will no longer be protected under this debt relief act. Homeowners that participate in a short sale that closes after the Mortgage Forgiveness Debt Relief Act expires will be responsible for paying taxes on the amount their lender forgives. For example, if you owe $250,000 on your loan and your lender agrees to a $200,000 sales price, the $50,000 that is being forgiven would need to be counted as income on your tax return. You would then need to pay taxes as though you received an additional $50,000 in income that year. The current debt relief act applies to forgiven or cancelled debt used to buy, build or substantially improve your principle residence. If this applies to you and you are in a position where you need to walk away from a mortgage obligation, now is the time to get the short sale process started. It can take several months to complete a short sale and time is limited if you want to avoid being hit with a large tax bill. For more information on how we can help, please call us to set up a free initial consultation.
