Tick-Tick-Tick: Mortgage Debt Relief Act is About to Expire

Real Estate Agent with Welcome Home Realty

Tick-Tick-Tick: Mortgage Debt Relief Act is About to Expire

We've recently housed the debate. Is it plausible, reputable, even financially feasible to foreclose on your home?  We debated both sides of Arizona's current real estate debate in our recent post Phoenix Real Estate: Is it Okay to Foreclose on Your Home? 

Did you know, however, that time is ticking?

Regardless of on which side of the debate you currently stand, the Mortgage Forgiveness Debt Relief Act is expiring on December 31, 2012. Those of you who have been on the fence as to whether or not to attempt a short sale, or foreclose on your home, are running out of time if you'd like to do so without major tax consequences in Arizona.  Up to this date, borrowers who qualify for the program can discharge the amount of debt forgiven as taxable income. 

If the home sells after December 31, 2012, however, you will be held liable for the difference in the form of taxable income.

Let's look at this scenario:

Let's say you owe $300,000 on your mortgage.  You beat that tricky little beast currently known in the market as a short sale, and sell your home for $200,000 - $100,000 less than what you owe.  Under current legislation, you are not responsible for the difference.  After the end of this year, however, at a 35% tax rate, you are on the hook for $35,000 in taxes.

In essence, if you are thinking about selling your current home that is worth significantly less than what is owed, you may need to think fast.  A typical short sale or foreclosure transaction can take up to a year to complete.  The longer you wait, the more time ticks away that you won't be able to get back. The longer you wait, the greater the potential risk.

Foreclosure is not for everyone. As always, consult a tax adviser before making any decisions about the future state of your home.  Knowing your options, however, is half the battle.

To see if you qualify under the current provisions of the Mortgage Forgiveness and Debt Relief Act, visit the official website of the IRS.


Posted by

Jessica L. Steele

Welcome Home Realty/Valley of the Sun Team



Comments (3)

Lisa Wetzel
RE/MAX Realty Affiliates - Carson City, NV
CDPE, SFR carsonvalleyland.com

Great Blog!  ... don't you mean after January 1, 2013 or December 31, 2012?

Jan 18, 2012 01:55 PM
Jessica Steele
Welcome Home Realty - Surprise, AZ

Thanks, Lisa! You caught my mistake. That's what I get for blogging with sleepy eyes! I appreciate your help in keeping me on track! Best wishes in 2012!

Jan 18, 2012 03:02 PM
Chandler Real Estate Liz Harris, MBA
Liz Harris Realty - Chandler, AZ

Of course, we will be told at the very last minute!

Jan 18, 2012 03:45 PM