Time Running Out On Forgiven-debt Tax Break

Time Running Out On Forgiven-debt Tax Break

Time Running Out On Forgiven-debt Tax Break

Mortgage Forgiveness Debt Relief Act Of 2007 Will Soon Expire On Dec. 31

What is that sound of a clock ticking behind all of the the underwater homes?

If you represent one of the many homeowners who have upside-down homes (a home worth less than the mortgage owed) then the ticking clock sound comes via Washington (and Sacramento) as the Mortgage Forgiveness Debt Relief Act of 2007 will soon expire on Dec. 31.

We have heard from various sources (at the National Association of Realtors, various political figures) that the Act will be extended but perhaps not in its current form.

Because this happens to be an election year and that Congress continues to have a fractious relationship, this act may not be extended in such a timely manner.

This law covers the “phantom income” or “forgiven debt” from taxes expires at the end of this year. The “phantom income” can be incurred if you let your home foreclose or sell a home through a short sale. For example if your home sells for $350,000 but you owe $400,000 on the loan, then that $50,000 difference (the short amount) would normally be charged to the seller as “income”. For some homeowners that amount could add up to a huge tax bill for federal and state taxes.

Renewal For Bill In 2013?

Even if the act eventually gets renewed, it doesn’t cover all homeowners.

The new bill may only cover homeowners who used their loan to purchase the home (purchase money) or did a refinance to improve the home. Homeowners who did cash-out re-fis and spent the money for any other purpose (e.g. vacations, buying a car, etc,) could still be liable for forgiven debt.

Even if Congress fails to decide on an extension until well into 2013, it could still make the law retroactive to Jan. 1, 2013, so no one would be left hanging with a large tax consequence.

Time Running Out On Forgiven-debt Tax Break

Time Running Out On Forgiven-debt Tax Break

Time Running Out On Forgiven-debt Tax Break

Time Running Out On Forgiven-debt Tax Break

Time Running Out On Forgiven-debt Tax Break

Time Running Out On Forgiven-debt Tax Break

Time Running Out On Forgiven-debt Tax Break

Time Running Out On Forgiven-debt Tax Break

Time Running Out On Forgiven-debt Tax Break

Time Running Out On Forgiven-debt Tax Break

Time Running Out On Forgiven-debt Tax Break

Time Running Out On Forgiven-debt Tax Break

Time Running Out On Forgiven-debt Tax Break

Time Running Out On Forgiven-debt Tax Break

Advertisements

Leave a comment

Filed under Uncategorized

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s