Health & Fitness
MORTGAGE DEBT RELIEF ACT MIGHT GET EXTENDED
The Mortgage Forgiveness Debt Relief Act spares homeowners who receive principle reductions on their mortgages from being hit with federal income taxes on the amounts forgiven.
“Mortgage Debt Relief Act Might Get Extended”
I have been writing on this topic for a while now. With all the folks that are involved with a short sale and foreclosure, to now have a huge tax consequence as well. They already have enough problems without adding one more. Most likely, they would not be able to pay the taxes that would be due.
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I am not a big advocate of tax breaks, but this is an exception. Personally I think the Mortgage Tax Relief Act should be extended for two years, but it looks like 1 year is more likely.
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Two weeks ago I closed a mortgage for folks that lost a home 3 ½ years ago. The property they lost, sold for nearly $200,000 less than the debt. If they were required to pay taxes on that money, they wouldn’t have been homeowners for years to come. There are hundreds of thousands for families in the same situation and many more to come.
Mortgage Debt Relief Act Might Get Extension
By: Herman Thordsen
MORTGAGE DEBT RELIEF ACT OF 2007 MIGHT JUST GET EXTENDED THROUGH DECEMBER 2013
FACTS
The Senate Finance Committee approved a bipartisan bill before summer recess that would extend the Mortgage Forgiveness Debt Relief Act through 2013. The debt relief law spares homeowners who receive principal reductions on their mortgages from being hit with federal income taxes on the amounts forgiven. Without it, millions of owners who go through foreclosure or leave their homes following short sales would experience even more financial stress by being taxed on the amount of debt that the lender forgave in the short sale or that was not recovered in the foreclosure sale. The law has provided relief to thousands of people who have debt balances written off as part of loan-modification agreements is set to expire at the end of December 2012.
The bill now moves to the full Senate for possible action next month, also would extend tax write-offs for mortgage insurance premiums for 2012 and through 2013, and continue some energy-efficiency tax credits for remodeling and new home construction.
The mortgage debt relief extension affect millions of families who are underwater on their loans, delinquent on their payments and heading for foreclosure, short sales or deeds-in-lieu of foreclosure settlements. Under the federal tax code, all types of forgiven debt are treated as ordinary income, subject to regular tax rates. When an underwater homeowner who owes $300,000 has $100,000 of that forgiven as part of a modification or other arrangement with the bank, the unpaid $100,000 balance would normally be taxable.
In 2007 the Mortgage Debt Relief Act agreed to temporarily exempt certain mortgage balances that are forgiven by lenders. The limit is $2 million in debt cancellation for married individuals filing jointly, $1 million for single filers. This special exemption, however, came with a time restriction. The current deadline is Dec. 31, 2012. Without a formal extension by Congress, starting on Jan. 1 all mortgage balances written off by banks would be fully taxable.
MORAL
There are five bills in Congress, so hopefully one of them will make it through for the homeowner.
image: renjith krishnan/freedigitalphotos.net
Joe Petrowsky, NMLS #6869
Right Trac Financial Group, Inc. NMLS #2709
110 Main St.
Manchester, Ct. 06042
Office: 860 647-7701 x116
