After Last year’s passage of the Mortgage Forgiveness Debt Relief Act of 2007, foreclosed homeowners have one less worry: taxes. When a homeowner defaults on a home loan, a mortgage lender will sometimes “forgive” the debt owed.
Posted by: Rob Kosberg in Real Estate, tags: Real EstateSometimes a homeowner sells his property at a price lower than is owed on the mortgage. It can happen that the lender will decide to declare the debt fully paid and accept the lower price.
This is often called a “short sale” because the lender is “short” of the full amount owed.Prior to Thursday, the IRS treated the forgiven mortgage debt as taxable income. This added thousands of dollars to a foreclosed homeowner’s tax liability.
As an example, a homeowner owes $62,500 on a mortgage. He sells the home for $62, 500 and the tax liability is $12,500. Because of the passage of the bill the homeowner will not have to pay these taxes.
On the other hand, there may be $650 million dollars lost to the IRS. The bill does limit tax breaks for selling vacation and/or second homes. These limits will affect homeowners.
Be sure to arrange to speak to your financial advisor if you believe that the Mortgage Forgiveness Debt Relief Act of 2007 will affect you.
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