The tax relief provision expired at the end of last year, and unless both the United States Senate and House of Representatives approve the extension, homeowners may have to pay tax on the forgiven debt.
“Even though the housing update for the real estate market has recovered from the housing crash, many homeowners still remain under water. Home Owners and those advising them need to know that this tax on forgiven debt does not just apply to short sales and loan modifications. It also applies to foreclosures, so ignoring the problem and just letting your home foreclose will not protect you from being liable for the tax. Home Owners need to pay attention and consult with a tax preparer on the IRS tax consequences of forgiven debt”. Says David Blank, CPA Founder of Homehelpusa.org.
NAR President Steve Brown says. “We applaud the Senate Finance Committee for approving a bipartisan compromise bill today This is, at its core, an issue that’s all about fairness. It is unfair to ask homeowners who are underwater on their mortgage and who make the prudent decision to do a short sale instead of allowing their mortgage to go into foreclosure to pay tax on the forgiven amount of the loan.”
The mortgage forgiveness tax relief act provided in the past has been one of Congress’ bipartisan success stories, and there’s a good chance an extension will pass Congress this year, too, analysts say.
Some 350,000 households could be affected by the tax if relief isn’t extended, because that’s the number of households who sold their house last year as a short sale. “And we expect a large number of short sales [an estimated 300,000 to 350,000] this year,” says Brown.
To read up on the tax law go to http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation.
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