Mortgage Forgiveness Debt Relief Act Extended to 2013 ...

Mortgage Forgiveness Debt Relief ActThe Mortgage Forgiveness Debt Relief Act of 2007 created a special exemption in the IRS tax code to forgive mortgage debt incurred from foreclosure, short sale or deed in lieu of foreclosure.

The mortgage debt relief extension is big news for home owners currently are underwater on their loans, delinquent on mortgage payments and possibly heading toward foreclosure, short sale or deed-in-lieu of foreclosure.

The IRS tax code states that all forgiven debt is treated as ordinary income, and taxed at applicable rates.

Here?s and example of what that means to homeowners possibly facing challenges with mortgage debt:

Let?s say a home owner is forced to move because of work. ?You can?t sell your current home because it?s upside down, you can?t afford to pay rent on a new place and keep up on the mortgage at the same time. ?This is what it could look like:

  • Your current mortgage is $300,000, your home short sells for $200,000.
  • The $100,000 loss from the short sale is reported to the IRS as income.
  • If your current federal income tax rate is 25%, you now have a $25,000 tax bill on your hands.

In 2007, the Mortgage Forgiveness Debt Relief Act of 2007 was passed and allowed this debt to be exempt and not taxable. ?The scheduled expiration of this program is the end of 2012.

On August 2nd, the Senate Finance Committee narrowly passed a bill proposing to extend the Mortgage Forgiveness Debt Relief Act through the end of 2013.

Also Included in the bill is a proposal to extend the mortgage insurance tax exemption and several?energy-efficiency tax credits for remodeling and home construction.

The bill, passed by the Senate Finance Committee, now goes to the full Senate for a vote as early as next month.

With a Presidential election only months away, this is no doubt going to be political football as the incumbents look to justify their value, and new players try to hit the ground running with a fresh round of relief for struggling homeowners.

Whether this passes next month, or if it doesn?t get signed until after the election, I am hopeful and fairly confident that we will see extensions to these programs.

Scott Schang

Manager at Broadview Mortgage Katella in Orange, California, I am passionate about educating and empowering consumers. Feel free to call, text or email me at (714) 805-7268 or ScottS@broadviewmortgage.com

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Source: http://www.findmywayhome.com/foreclosure-prevention/mortgage-forgiveness-debt-relief-act-extended-to-2013/

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