Mortgage Forgiveness Debt Relief Act and Debt Cancellation of 2007
The mortgage debt relief act and debt cancellation, originally set to expire at the end of 2009, was extended to expire the end of 2012. That's the good news. Here's the bad news..... it's ending this year!
What does the mortgage forgiveness debt relief act do for me? ... it SAVES you MONEY. For example, if you sell your primary home for less money than you owe your bank (definition of a short sale), and the bank forgives the deficiency... you would normally receive a 1099-C form identifying your forgiven debt. This forgiven debt is TYPICALLY taxable income... UNLESS the mortgage forgiveness debt relief act still active. Under this act, you will not have to pay the taxes on the deficiency if you qualify. For more information...visit the IRS Mortgage Debt Relief Act page.
If your property sells for $100,000 less than your current mortgage, you will receive a 1099 from your lender for $100,000. If you have no further write down's, and you're in the 30% tax bracket, get ready to cough up $30,000 in taxes if you wait to sell AFTER the mortgage forgiveness debt relief act expires at the end of this year.
If however you sell your home this year, and you qualify for the mortgage debt relief act, you pay ZERO dollars. This is a huge benefit and if you plan to sell your home short, you would be served well to engage the services of a knowledgeable real estate agent to begin the process NOW. We're talking about a lot of money here to end up in your pocket or the government's pocket... Choose now while there's still a choice!
This act expires at the end of 2012, which means the short sale transaction must be submitted, approved, and close in 2012! It is not enough to have the short sale in process. It must close this year! At this moment, I am have no indication that this Act will be extended, so waiting and hoping it will can have devastating consequences. From a timing perspective, short sales are time intensive and typically take anywhere from 3 months to 6 months. Circumstances can extend the window at either side of the spectrum. Realistically, any homeowner who is still on the fence about whether or not to pursue a short sale needs to decide quickly in order to benefit from this Act. Banks are forgiving more and more deficiencies and this could be their last chance to take advantage of this opportunity.
For more information about short sales in general, please visit my Short Sale web site.
Thank you, and good luck.