Author: Steve Queen
Mortgage Forgiveness Debt Relief Act Information For Bowie MD Residents
In 2007, Congress passed the Mortgage Forgiveness Debt Relief Act to help people who were down on their luck financially because of the loss of their homes. The tax break was supposed to end in 2009; however, it was extended through Dec. 31, 2013 because many people still needed help. As of today, Congress has allowed the Mortgage Forgiveness Act to expire, even though some states hardest hit by the housing crisis (such as Bowie, Maryland) are still seeing high foreclosure rates.
The constant question I am asked as a realtor wth many completed short sale is , “Will I have to pay taxes on the forgiven amount?”
While I am not a CPA’s nor qualified to provide tax advice, the fact remains that I have worked with a vast amount of homeowners who have successfully completed short sale transactions. Many past clients have informed us that they were able to get around owing taxes on their forgiven debt by qualifying for what’s called the “insolvency exclusion.” You may not have to include forgiven debts as income if you can show that your total liabilities exceed your total assets.
Most banks will only approve a short sale once they have determined that a “hardship situation” exists. Many of these hardship scenarios may also qualify for insolvency. Once again, the above is not intended as tax advice; however, there are provisions in the IRS tax code which may provide the same protections as were allowed under the Mortgage Forgiveness Debt Relief Act. There is still hope!!!
More than 1.2 million properties are in some stage of foreclosure, RealtyTrac reports. And some states hardest hit by the housing crisis are still seeing high foreclosure rates. RealtyTrac’s November foreclosure report found that five states posted year-over-year increases in bank repossessions: Delaware (179 percent), Maryland (41 percent), Connecticut (9 percent), Maine (6 percent) and Iowa (2 percent).
It might not make sense to have to pay taxes on forgiven debt because it isn’t money that was earned. You aren’t taxed on borrowed money because you have an obligation to repay it. However, money you borrow that is then canceled as a result of a foreclosure or short sale counts as income. If the debt is forgiven, the lender is required to report the amount because you no longer have an obligation to repay the money. Let’s say someone owes $400,000 on his or her home but can only sell it for$240,00 and the bank nets $225,000. The difference, $175,000, would be considered taxable income.
House Republicans in Congress have argued that it’s time to move on. Allowing the tax break means less revenue for the federal government. Additionally, some taxpayers may be able to still get around owing taxes on forgiven debt if they qualify under again the insolvency exclusion. You may not have to include forgiven debts as income if you can show that your total liabilities exceed your total assets.
Yes, things are a little better than at the height of the housing crisis. However, the housing market still hasn’t fully recovered. Things are better but not great. In November, the number of properties that received a foreclosure filing was 37 percent lower than in the same month a year before, according to RealtyTrac. But there are still a lot of people who may lose their homes.
If you are interested in information about the Short Sale Process, The Homes Affordable Foreclosure Alternative Program (HAFA) or The Home Buying Process of any property in Bowie or the DMV area please Call Steve Queen for your personal consultation at (202) 367-4348.
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Because buying or selling a home is a big decision, Steve Queen with Exit Bennett Realty is your Real Estate Expert in Bowie, Upper Marlboro, Greenbelt, Lanham, Laurel, Glenn Dale, Crofton, Glen Burnie, Clinton, Hyattsville and all other cities in Maryland and the District of Columbia. You will have step by step guidance to access resources to make the transaction smooth. Call me today at (202) 367-4348. You are my #1 priority. Please give me the opportunity to prove it.