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Forgivness of Dept on Short Sales

By
Real Estate Agent with RE/MAX Hometown
Forgiveness of Debt on Short Sales:
On December 20, President Bush signed into law H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007. While this piece of legislation is far from being a cure for all the ills caused by the recent and on-going decline in the real estate mortgage sector, it will certainly provide relief for some who are caught between declining home values and rising mortgage payments.

After a short sale (a sale where the lender accepts less than they owed) taxpayers are sometimes surprised to receive a Form 1099 stating that the "debt forgiveness" they received is taxable as ordinary income.

Finally, after much prodding from real estate professionals Congress passed a bill to exclude this phantom income from tax payer's income. In one of my previous alerts it was stated that the income didn't have to be reported if the loan was a non-recourse loan or if the taxpayer was insolvent. Now, we have a federal law which is a Christmas gift to many homeowners whose properties are over-financed.

The Act is effective from January 1, 2007 to December 31, 2009. There are restrictions, such as, only for acquisition debt and only when a property has declined in value.

To read the entire Forgiveness of Debt Act go to: http://t.pm0.net/s/c?fj.4hp1.3.2t1u.6rso

Show All Comments Sort:
Colin Egbert
www.RealEstateInvestor.com - Columbus, OH
What does everybody think about this act that president Bush signed on Dec. 20th?
Jan 25, 2008 05:07 AM
Richard Ives
Chicago, IL

Thanks for sharing Mark.

Have a great day!

Feb 05, 2008 09:26 AM