Archive for the ‘Short Sale Debt Forgiveness Act’ Category

Short Sale Debt Forgiveness Ends in 2012 –

The debt foregiveness on a short sale was first approved by Congress in 2007 and is scheduled to end in 2012.  Right now under the debt forgiveness act, when a homeowner does a short sale and the lender foregives the portion of the mortgage principal that is not repaid, instead of being treated as taxable income to the borrower, it is forgiven.  The amount of debt forgiven must be reported on form 982 ad must be attached to your tax return. 

According to the Bay State Realtor Magazine (by Stephen Ryan, ESQ – MAR General Counsel)

Five years ago when the number of foreclosures and homes being sold as short sales began to increase, Congress passed the Mortgage Forgiveness Debt Relief Act of 2007, which was intended to give homeowners facing distressed property situations some relief.

In a short sale a lender foregives some portion of a borrower’s debt.  The general tax rule that applies to any debt forgiveness is that the amount forgiven is treated as taxable income to the borrower.  Some exceptions to this rule are available but, until 2007, when a lender forgave some portion of a mortgage debt (such as in so-called “short sale” foreclosures and “workouts”), the borrower was required to pay tax on the debt foregiveness.

The law, enacted in December 2007,  provides relief to troubled borrowers when some portion of mortgage debt is forgiven.  That relief expires on December 31, 2012.  While the possibility exists that the law may be extended, as of press time there is no guarantee that this will occur…….

It is important that slllers understand that, if this is not extended, there could be a significant tax liability if the transaction does ot not close on or before December 31, 2012. 

 

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