You would have to be living in a cave not to have heard about the “Fiscal Cliff” that will happen if Congress doesn’t come up with a financial deal by the end of the year. But another law is set to expire which is almost more important for homeowners in foreclosure, the 2007 Mortgage Forgiveness Tax Relief Act.
This Act was designed to eliminate taxes for homeowners on debt that is forgiven by the lender in the case of a short sale or refinance or loan modification. It applies, generally, to those who bought or refinanced their residences before the housing collapse in 2007-8. If the mortgage company allows the homeowner to reduce their balance, and “forgives” the debt, normally, the homeowner gets taxed on the amount forgiven. They’d get a 1099 form from the mortgage company to be reported to the IRS. So if the homeowner is forgiven $100,000.00, the homeowner could owe another $20-30,000.00 in income taxes. This Act gives homeowners relief from those taxes, but it’s set to expire at the end of 2012. How about that for a swift kick to homeowners when they are down?
Lawmakers have been saying that this important tax exemption may not be discussed until after the “Fiscal Cliff” negotiations have finished. It could also be dealt with as part of a “grand bargain” on all the financial issues facing the country in the next 6 weeks.
See the article: http://www.huffingtonpost.com/2012/11/24/mortgage-relief-tax_n_2176013.html
We will watch developments closely on this issue. In the meantime, if you are planning on doing a short sale or refinance, and there will be debt forgiven on your mortgage, you are better off closing by the end of the year.
If the tax exemption ends this year, people may be faced with fewer options on their “underwater” houses.
If you are trying to decide what to do with your home, you should contact an experienced tax advisor and bankruptcy attorney. We have offices in Chicago Loop, Oak Lawn, and Waukegan to help you.
Daniel J. Winter
BankruptcyLawChicago.com
Law Offices of Daniel J. Winter
53 W. Jackson Boulevard, Suite 725
Chicago, IL 60604
312-789-9999
