Obama’s FY2013 budget proposal includes an extension of the Mortgage Forgiveness Debt Relief Act of 2007. The reason this act is important in today’s housing market is that, without the act, debt reduced through mortgage modifications or short sales qualifies as income to the borrower and is taxable.
If the legislation is not extended, then it would require homeowners to complete a short sale or modification prior to year’s end in order to avoid a tax consequence.
Meaning, if the bank loses $200k, homeowners can expect a 1099 for $200k! Unless the homeowner is exempt, the taxes must be paid. Refer to the IRS Publication The Mortgage Forgiveness Debt Relief Act and Debt Cancellation.
Most homeowners who short sale or foreclose are nervous about 3 things:
1- Financial Liability
2- Tax Liability
3- Credit Liability
Those who are considering a short sale may want to do it sooner rather than later. Unless a key law is extended by the end of the year, anyone who conducts a short sale after the end of 2012 may be subject to tax liabilities on the forgiven mortgage debt.
Last week, DSNews reported:
“Obama’s FY2013 budget proposal includes an extension of the Mortgage Forgiveness Debt Relief Act of 2007… 
In the Treasury’s Green Book, its summary explanation of the administration’s budget proposal, it calls for an extension of the tax break due to “the continued importance of facilitating home mortgage modifications.”
The administration is proposing an extension that would apply to any amounts forgiven before January 1, 2015.”
At that point, the government would reassess the market and determine whether another extension is appropriate. However, given today’s political environment, the passage of any budget proposal could be considered doubtful. We can only hope that both parties are in agreement that this provision should be extended. Being an election year, politics may supersede assistance to those who the politicians claim to represent.
The Trademark Loss Mitigation team is a family owned business and includes a multi-state network of real estate agents, attorneys, title companies, short sale negotiators, credit repair providers, mortgage providers, inspectors and investors. Together, those professionals act as a NO COST short sale outsourcing solution for Realtors and Homeowners.
Jim McNinch, Certified Distressed Property Expert (CDPE);
Short sale agent, Short sale specialist
Jim@trademarklossmitigation.com
http://hosted.cdpe.com/trademark
http://www.trademarklossmitigation.com
832-330-4588
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