Unfortunately, Congress has yet
to change the way they conduct business. At
the end of 2013, Congress let a number of tax breaks expire. Included in those
tax breaks is the Mortgage Debt Relief Act or Debt Forgiveness Act.
This act has been the only winner of all the federal attempts to deal with the
country's real estate problems.
Normally, any "debt
forgiveness" is taxable as ordinary income. Accordingly, if there is a
foreclosure or a short sale of a property, then this creates a deficiency
(which if forgiven or written off becomes taxable income). The lender will
issue a 1099 for the amount charged off, and the homeowner who has just lost
his house will be taxed with "phantom" income.
Under the Debt Forgiveness Act,
the debt being forgiven has to meet certain conditions: it has be either
purchase money, refinance of the purchase money, or money borrowed to improve
the residence AND the property has to be the borrower's primary
residence. Assuming the debt forgiven meets those conditions (which most loans
do), then there will be no taxable income to the Borrower who has just lost or
short sold his house.
The Debt Forgiveness Act has been
extended over three years since it was originally introduced in September of
2007. Tucker's Tip encourages everyone to write your local congressmen since
Congress has yet to grant an extension on this valuable piece of
legislature.
P.S. Even if the debt forgiven
from a foreclosure or short sale does not qualify as primary residence, there
are still some exceptions which may result in no taxable income to the
Borrower. Please suggest that the Borrower contact his CPA or tax professional.
Contact me at 434-951-0858 or Tucker@TGBLaw.com if you have questions.
Tucker Griffin Barnes P.C.
Charlottesville, VA
434-973-7474
www.TGBLaw.com
No comments:
Post a Comment