If you happen to have missed Bush's signing of H.R. 3648 on December 20, 2007. The bill actually amends the Internal Revenue Code of 1986 in several ways but the issue of forgiven mortgage debt is very interesting. Since we are talking IRS issues, that means this is not just an Arizona issue, but impacts the whole nation.
Previous, to the Bill signing, when a homeowner lost their property to foreclosure or sold their property for less than the mortgage amount (Short Sale), they could/usually would be taxed on the amount of the mortgage that was forgiven by their lender. A 1099 form would be issued by the mortgage company to the IRS for the amount of loss. The IRS then considered that canceled debt to be income for the home seller. The seller may already be in dire circumstances from a loss of job, illness/death in family, accident, family disaster, etc., in addition to losing their residence. The additional hit of having to pay taxes on thousands of dollars of income that they did not earn would most likely seem devastating!
From what I can interpret in this new Bill is that this only applies to mortgages that were forgiven retroactively from January 1, 2007 to December 31, 2009. It only applies to the principle residence; it can not be a second home or rental property. Mortgage was used to buy the home and the home loses value or the homeowner's financial condition qualifies.
Since it is Tax Time and this will be the first year that people will be able to use this clause, it will be interesting to see how long it takes for our economy to get back on it's feet.
More Postings to come ........
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