The Federal Mortgage Forgiveness Debt Relief and Debt Cancellation Act was enacted in 2007 to help struggling homeowners by allowing qualified applicants to exclude the discharged debt from their income taxes after a short sale of their primary residence. This law automatically sunsets at the end of this year.
Without this law, many homeowners who have been through a short sale will end up paying incomes taxes on the discharged debt. For example, if a homeowner had a $200,000 mortgage and completed a short sale for $125,000 – the lender/services issues a 1099 for $75,000 and the homeowner is then responsible for the incomes taxes on that $75,000.
To put this into perspective, there is a long standing Capital Gains Exemption for profits made from the sale of a primary residence. The first $250,000 per individual (or $500,000 per married couple) is automatically exempt from federal income taxes.
It seems horribly unfair to tax homeowners with a real hardship for their loss while at the very same time giving an exemption to homeowners make an actual profit from the sale of their primary residence. Talk about kicking someone when there are down!
Why haven’t you heard about this before? Because there are those in Congress who want this to expire and if nothing is said or done, that is exactly what will happen.
Being that political season is upon us, this is a great time to bring this issue up with your current and potential US Senators and Representatives.
The National Association of REALTORS® is working to keep the current Mortgage Forgiveness Debt Relief Act and Debt Cancellation in place for at least another year, but this is not going to be an easy fight.
According to John Tuccillo, a well known economist, this is one of the biggest real estate related issues facing our troubled economic future.
I encourage you to speak up and speak out on this issue!
To find out who represents you, visit: http://www.gis.leg.mn/OpenLayers/districts/
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