First, let me disclose that I am not a CPA nor a tax expert – please consult with a licensed tax expert and tax adviser.
11-20-2014: If you have to sell your home or it is foreclosed upon, then the difference between the net proceeds from the sale of the property and the net amount due on the balance of your mortgage is considered income and will be taxed unless the Mortgage Forgiveness Debt Relief Act of 2007 (MFDRA), which expired December 31, 2013 is extended to apply to all affected homeowners in 2014.
Since 1997, single tax filers are allowed to deduct the gain (sales price less purchase price and major improvements/additions/expenditures) up to $250,000 (up to $500,000 if married) on the sale of your “primary” personal residence provided they lived at the residence in any portion of 2 of the past 5 years. (See IRS Publication 523 for ideas to discuss with a tax adviser.)
Home office deduction: If you’ve been using a home office deduction, you will need to pay income taxes on the cumulative amount you’ve deducted in the past and the tax is effective in the year you sold the home.
Home Buyer tax credit recapture: Effective for years 2008-2010, there were two types of tax credits for home purchase, one refundable ($7,500) and another non refundable ($8,000) with occupancy time limitations. – See IRS Form 5405 and consult with a tax adviser).
At least for the remainder of 2013, the mortgage debt forgiveness (normally taxed) from short sale/foreclosure on your personal residence will remain non-taxable. No telling if this relief will be extended into 2014, but hey – it’s an election year and certain votes are still for sale or long term rental!
Source: WSJ 6-22-2013, Page B9
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