On December 31st2012 the Mortgage Debt Relief Act is set to expire – what does this mean for homeowners who are struggling with their mortgage? Simply put, it could potentially mean more debt.
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation was put into place in 2007 to help homeowners who owed more on their home than what they could sell it for. For example, if you owed $400,000 on your property and sold it for $300,000 at a 28% tax rate, the settlement difference of $100,000 is $28,000 in taxes you could owe the IRS. However, those who complete a short sale prior to December 31st 2012 would not have to claim the $100,000 as taxable income.
Normally, the debt that is forgiven by the lender would be included as income on your tax return and it is subject to taxation. But the Mortgage Debt Relief Act allows you to exclude curtained forgiven debt on your principal residence from your income. If Mortgage Debt Relief Act is not extended, this exception will go away and struggling homeowners could owe the IRS.
Short sales can take anywhere from one month to several months to complete. The process can be arduous and stressful – that is why it is imperative homeowners hire a professional, experienced REALTOR to help them navigate through the process. If you think a short sale is the best alternative for you right now, you need to act and quickly. It is unclear whether or not Congress will agree to extend the Mortgage Debt Relief Act past the end of the year. If you need to short sale your home, now is the time. Please contact me today for a private, no obligation consultation to review your short sale options.