Category: mortgage

As 2014 moves forward, a very important piece of legislation hangs in limbo. As noted in my earlier post, “Keep Your CPA Close and your Congressman Closer“, the Mortgage Debt Forgiveness Act has expired as of December 31st, 2013. This means that someone that will experience a foreclosure or short sale in 2014 may have to pay income tax on the portion of debt that has been forgiven. Here is an example: Let’s say someone sells a home for $150,000, but owes $200,000 on their mortgage. If the seller cannot pay the $50,000 shortfall, the lender may “forgive” this $50,000...

In 2007, the Mortgage Debt Forgiveness Act was passed. Prior to this, the IRS viewed a cancelled or “forgiven” debt as taxable income. The 2007 Act gave relief to homeowners that experienced a foreclosure or short sale. As an example, if someone owes $200,000 on a home, but the home was sold via short sale for $150,000, then the $50,000 that went unpaid was considered “cancelled debt”. Prior to the Mortgage Debt Forgiveness Act, that homeowner would have had to treat that $50,000 as income when they completed their taxes! The Act permits, in most cases, for that “income” to...