Good news for the struggling homeowners can breathe a sigh of relief knowing that Congress has included an extension of Mortgage Forgiveness Debt Relief Act in an eleventh hour bill to avoid a possible fiscal cliff crisis. The Act that was scheduled to expire on December 31, 2012, was extended in the American Taxpayer Relief Act until December 31, 2013.
The debt relief act, which was scheduled to expire at the end of 2012, waives forgiveness of mortgage debt from being counted as taxable income by the Internal Revenue Service.
That applies mainly to short sales of homes, or lender-approved sales for less than the principal mortgage balance. A homeowner who owes $150,000 on the mortgage and short sells for $100,000 would have been taxed on the $50,000 difference as income, placing them in a higher tax bracket.
Struggling homeowners who are considering a short sale or loan modification will be eligible for tax relief through Dec. 31 under the act passed in 2007 and originally scheduled to expire in 2009.
Short sales account for about 45 percent of all home sales in Las Vegas, the latest statistics from the Greater Las Vegas Association of Realtors show.
By extending the Act, homeowners will not have to pay income tax on mortgage debt forgiven up to two million dollars. Please check with your tax professional for all applicable scenarios as not all mortgage debt is subject to the Mortgage Forgiveness Debt Relief Act.
This extension is especially important to underwater homeowners, who owe more for their home than it is worth. Short sales have enabled them to avoid foreclosure; however, already struggling homeowners with no equity in their homes would have faced significant difficulties paying income tax on their forgiven debt. Homeowners who are able to avoid foreclosure by receiving a loan modification that includes a principal reduction will also benefit.
For more information on how it effects your situation: www.RealVegasValue.com
