The American Taxpayer Relief Act of 2012
was on January 1st, 2013. As a result, the Mortgage Forgiveness Debt Relief Act has been extended
for another year. The measure will continue to exempt from taxation
mortgage debt that is forgiven when homeowners and their mortgage
lenders negotiate a short sale, loan modification (including any
principal reduction) or foreclosure.
When
a homeowner experiences a debt reduction through mortgage principal
forgiveness - such as through short sale, foreclosure, or even loan
modification - the amount of debt forgiven is considered taxable
income. In 2007, Congress passed the 2007 Debt Forgiveness Relief Act
which exempted up to $2 million of debt forgiven on the home owner's
principal residence as long as the debt was used to buy, build, or
substantially improve their principal residence and be secured by that
residence. The Debt Forgiveness Relief Act has been an incredibly
valuable tool in helping our nation's real estate industry recover.
However, the Act which was passed in 2007 had a 5-year sunset provision
and was set to expire on December 31, 2012. The American Taxpayer Relief Act of 2012 extended the sunset provision until Jan. 1, 2014.
For
the real estate industry and for upside down owners, especially those
with short sales pending, they can now breathe a sigh of relief knowing
that they won't get slammed with taxes and they can move on with their
lives.
All
indications are that we still have a long way to go to complete the
resolution of the mess caused by the housing collapse. But conditions
are improving. The low inventory of properties for sale is causing price
increases in many markets and, for the first time in many years, equity
sales, ie: sales where the sellers actually receive some money,
represent more than 50% of the market.
If
you or someone you know would like to discuss this further than please contact us.
The
information presented in this Article is not to be taken as legal
advice. Every person's situation is different. If you are upside-down on
your loan, especially if you're facing a lender lawsuit, get competent
legal advice in your State immediately so that you can determine your
best options.
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