This means those under foreclosure or distressed mortgage default, there will be a federal income tax bill on the way…or is it?
How to Avoid Taxes on Canceled Mortgage Debt… This can also apply to debt that is discharged in 2018 provided that there was a written agreement entered into in 2017.
NAR: Debt Forgiveness Should be Permanent Part of Tax Code . The ACT expired in 2017, but early this year (2018) it was extended retroactively to cover the previous year (2017). Barry Grooms, 2018 vice president of Florida Realtors®, testified on behalf of NAR. He told committee members, “The exclusion for mortgage debt cancellation delivers a huge dose of fairness. When the investment in a home goes well, and the owner sells at a gain, the tax code generously waives capital gains up to $500,000. But what happens when things go sour, equity is lost and the family is forced to sell short? Up through last year, the exclusion stepped in and relieved the often-impossible tax burden. If allowed to expire, we are left with a tax policy that rewards good fortune but piles on when the tables are turned.” He added, “This is neither fair nor smart.”
As of the date of this post (about 234,508 U.S. properties were reported to be foreclosed in the first quarter of 2017)- it no longer is in effect for 2017 and beyond. As of December 18, 2015, President Obama has extended the expiration date of this law through December 31, 2016. This is bad news for the many homeowners who are suffering through foreclosures in 2017 and beyond, unless of course if US Congress receives pressure to extend the deadline once again.
Generally, mortgage debt which has been written of or forgiven through short sales or foreclosures is considered income and taxable to taxpayers. This US Congressional Act allows taxpayers to exclude income from the discharge of debt on their principal residence under certain circumstances outlined in IRS Publications #4681. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
1-13-2015: This act has been extended for all those individuals who had debt cancelled under IRS guidelines in 2014.
11-16-2014: Ok, this as extended to those in 2013, but it is not effective for anyone who experienced a distressed home sale in 2014 – will you write your US Congressional Representative to appeal the extension to those in 2014?
According to the IRS, your mortgage debt is partly or entirely forgiven during tax years 2007 through 2012 – see 10 facts about debt forgiveness at the IRS website.
Note: I believe it has been extended to 2013, but not beyond – unless Congress acts on it – but since they haven’t even agreed on a budget, let’s not hold our breaths on this one that really matter to people.
The MFDRA is effective for mortgage debt canceled between 2007 and 2012. Forgiven debt does not qualify as income if the mortgage was to purchase, repair or build on the borrower’s primary residence. The forgiven debt must have been part of a mortgage restructuring or cancellation of debt following a foreclosure. Individuals are limited in this time period to $2 million of exemption and married couples filing separately are limited to $1 million each. The forgiven debt and the reason for exemption must still be filed on tax returns.
Forgiven debt qualifying as income for the IRS includes short sales on real estate. Bank foreclosures on real property may also qualify if the property later sells for less than the amount owed on the loan.
Is your time almost up? It expired in 2013, so will it be renewed in 2014? Source: http://www.johnhartrealestate.com/blog/2013/09/mortgage-forgiveness-debt-relief-act-expiration-all-good-things-must-come-to-an-end/
According to the IRS, your mortgage debt (on your primary personal residence) is partly or entirely forgiven during tax years 2007 through 2012 – see 10 facts about debt forgiveness at the IRS website.
Note: I think this law has been extended to cover through December 2013, but verify with the IRS…
The Act is about to expire. Do you think Congress will extend the time period covering the Act, or let it expire? Source: IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments for more information regarding the income tax treatment of forgiven debt.
See IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments for more information regarding the income tax treatment of forgiven debt.
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