Mortgage Debt Relief to Expire

The Mortgage Debt Relief Act of 2007 was enacted for 5 years during the last year of President Bush's administration in order to relieve homeowners being forced out of their homes of any additional financial nightmare from the IRS relating to the debt forgiveness.


"The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. This provision applies to debt forgiven in calendar years 2007 through 2012."

Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

The Mortgage Debt Relief Act of 2007 is due to expire at the end of 2012. In other words, the amount of debt that a lender forgives through a short sale or foreclosure can be taxable in 2013, after the Debt Relief Act expires. So if a house sold $50,000 short of what is owed on the mortgage, then the selling homeowners will owe federal income taxes on that $50,000.

Anyone considering a short sale or walking away from an under water primary residence may want to consider these potential consequences and act accordingly. Short sales take time as do foreclosures in Florida. A typical short sale can take 6 months or longer to close, although recently we've closed several in under 6 months. Lenders have begun to accept short sale contracts more readily, consequently the process can be faster depending on the realtor, servicer and lenders involved.
Contact me directly for a confidential discussion and for more info.

George Sinacori
GES Real Estate, LLC
ges.rellc@ymail.com

ges-realty.com