Mortgage Forgiveness Debt Relief Act
You may have heard about homeowners losing their homes to foreclosure or selling them in a short sale, only to be hit with a tax bill afterwards. The IRS saw the forgiven mortgage debt due to foreclosure, short sale, or deed in lieu of foreclosure as taxable income.
Therefore, the IRS was adding insult to injury and taxing the forgiven amount. This could amount to tens of thousands of dollars for an already financially strapped family.
Thankfully, President Bush signed bill H.R. 3648 into law, on December 20, 2007, that will eliminate the tax up to $2 million on primary residences only. The new law waives any taxes on these forgiven debts (up to 35%) from now until the end of 2009.
During the signing, President Bush made the following statement:
“When you’re worried about making your payments, higher taxes are the last thing you need to worry about. So this bill will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. And it’s a really good piece of legislation. The provision will increase the incentive for borrowers and lenders to work together to refinance loans – and it will allow American families to secure lower mortgage payments without facing higher taxes.”
Unfortunately, this exemption only applies to primary residence and does not apply to investment properties. There are no plans to add that waiver at this time.
Excellent post,
As home prices and interest rates keep rising, lenders have figured out a way to keep the dream alive for millions of people who want to own their own home. It’s called the 50-year mortgage. Mortgage experts caution that the 50-year mortgage is best-suited for those who plan to stay in their home for about five years, while the loan’s interest rate remains fixed.
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You make some good points in this post. I think things will start getting better towards the end of 09. How have your views changed in the last couple of months?