Mortgage Forgiveness Debt Relief Act

Time is running out on the Mortgage Debt Relief Act – the current extension will expire at the end of 2012. If you’re wondering why we should care – its because this act protects primary residence homeowners who short sale or who are foreclosed on from paying taxes on the forgiven debt.

In the current guidelines, if a homeowner is forgiven of debt on their primary residence which is defined as being occupied for 3 out of the last 5 years, the IRS will forgive the income taxes owed on the forgiven debt. If you’re still thinking… ‘What the heck?’… let me explain with an example.

Sally the Seller has lost her job and is forced to relocate to secure another job position. She can not continue to make her payments on the home that she’s lived in for 4 years and she owes $250,000. Larry the Listing Agent is able to sell her home as a short sale for $150,000 and Sally’s lender agrees to waive the right to the deficiency balance which is roughly $100,000 (the difference between $250,000 and $150,000 – this example does not include additional costs associated with the short sale paid by the lender). The following year Sally receives a 1099c in the amount of $100,000 from her lender for the amount of the forgiven debt or deficiency balance. When Sally takes her tax documents and 1099c to her CPA, they determine that she does not have to pay income taxes on the $100,000 since she qualifies under the Mortgage Debt Relief Act.

An extension to the act has been requested, but many say it will not be extended or it will be reenacted in 2013 since this is an election year – time will tell.

For more information on the Mortgage Debt Relief Act, please go to the IRS.gov website.
For more information about short sales or to find out if you may qualify, please contact me!

http://www.irs.gov/individuals/article/0,,id=179414,00.html

About Melissa Yost Fuentes

Melissa specializes in residential real estate in the Central Arizona market which includes the communities of: Casa Grande, Maricopa, Arizona City, Coolidge, Florence, Chandler, Gilbert, Mesa, Queen Creek, San Tan Valley and everything in between. She has a drive for excellence which has earned her the following designations and certifications that add to her ability to effectively work for you: the Certified Distressed Property Expert designation, the Certified Investor Agent Specialist designation, the Accredited Buyer Representative designation, the Short Sale & Foreclosure Resource certification, the Graduate Realtor Institute designation, and the ePro designation which is designed to help utilize the most current and innovative technology tools when searching for or selling your home. In addition, an Associate of Arts degree in Visual Communications with an emphasis in Multimedia helps Melissa put every piece of the marketing puzzle together to work for you when selling your home in this difficult market.

Posted on May 24, 2012, in Helpful Information, Short Sales and tagged , , , , , , , , . Bookmark the permalink. Leave a comment.

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