Mortgage Debt Relief Act extended through 2016
Special to the Sun-Bonanza
INCLINE VILLAGE, Nev. — Buried deep in the Tax Extenders provisions of the 2016 Appropriations Bill (H.R. 2029) quietly passed by Congress and signed by the president on Dec. 18, 2015, was a very unpublicized extension of the Mortgage Forgiveness and Debt Relief Act of 2007.
In fact, the reference to this extension of this very relevant act was so deeply buried, that I am indebted to a very generous regional representative of Sen. Dean Heller for providing me with a map to find the needle in the haystack (see pages 824-825 of 887!).
This extension is of great importance for homeowners who are still suffering under the weight of underwater homes.
As I have discussed previously (blog postings can be read at inclinelawgroup.com/clarity), the Mortgage Forgiveness and Debt Relief Act of 2007 provides a tax exemption for homeowners for “income” resulting from debt forgiveness related to foreclosures, short sales and principal forgiveness of loans.
When a lender “forgives” debt — e.g. it waives pursuing a deficiency in a short sale or elects not to sue for deficiency after a foreclosure sale — the debt that is forgiven is, in most circumstances considered by the IRS to be ordinary income and taxable as such.
Under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers can generally exclude income resulting from the discharge of debt on their principal residence.
For more information see https://www.irs.gov/uac/Home-Foreclosure-and-Debt-Cancellation (please note that the IRS has not yet updated its website to reflect the extension of the act through Jan. 1, 2017).
This latest extension will continue this tax protection for homeowners through the 2016 tax year. This means that if you relinquished your home in a foreclosure, short sale or deed in lieu, or had a loan modification resulting in debt forgiveness in 2015, or if one of these unfortunate events happens to you in 2016, you may be able to take advantage of this latest extension of the act.
Please note that before making the decision to relinquish your home and incur taxable debt forgiveness, it is highly advisable that you speak with a tax professional.
As with most IRS rules, there are exceptions and restrictions that could be a “gotcha” for an unsuspecting homeowner. But if you do in fact qualify, this is fantastic news for underwater homeowners!
If you have questions about an underwater mortgage, loan modification, foreclosures or short sales, Incline Law Group LLP can provide you with options and information to help you make informed decisions.
Cassell von Baeyer is an attorney at Incline Law Group. Visit inclinelawgroup.com to learn more.
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