Back in 2007, Congress passed the Mortgage Debt Relief Act which generally allows taxpayers to exclude income from the discharge of debt on their principal home. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
Here’s an example: you owe $200,000 on your home and a short sale or foreclosure nets the lender $125,000. That loss to the lender in now considered a gain to you. Before 2007, you would have had to possibly pay capital gains tax on “profit” of $75,000. The Mortgage Debt Relief Act forgives that debt if your home sold between 2007 and 2012.
Here’s the important fact you need to know. This act is scheduled to sunset at the end of 2012. I’d like to guarantee that Congress will extend the act but there is no way to guarantee that. One only has to read the newspaper or watch the news to realize how dysfunctional this legislative body is. They may extend it or they may not or it may come back in a different form.
If you’re upside down and considering a short sale, deed-in-lieu of foreclosure or foreclosure, now is the time to talk to an expert, whether it be a trained short sale realtor, accountant or attorney. Because the Minnesota foreclosure process takes so long (usually a year or more), there’s a possibility that your home may not go back to the lender until 2013. If the law hasn’t been renewed, now what happens?
If you’ve got questions about short sales, deed-in-lieu of foreclosure or forecloses and want to know your rights and options, call or email me. I’m here to bring you the best information and knowledge so you can make the best decision. Usually that decision is a short sale but we won’t know until know your situation. Once we know that, we can put a game plan together.
If you’re sick of wondering what and when to do something about your home, quit putting off the decision. It’s a simple email or phone call. Read the testimonials on this site. These people were in similar situations and we got them out of their homes and they usually owed nothing after the sale.
Thanks for reading this.
Joe Stradcutter
High Pointe Realty
Phone: 612-516-3456
Email: jstradcutter@gmail.com
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