Tip 7-2014: Debt Forgiveness Act - Not Yet Extended for 2014

The Debt Forgiveness Act is the only law passed within the last seven years by the Federal Government that has actually had some benefit to troubled and underwater homeowners.  Normally, when a debt is forgiven, (i.e. the unpaid balance in a foreclosure or short sale is written off) the borrower receives a 1099 creating ordinary income for the forgiven debt. The Debt Forgiveness Act states that if the debt forgiven was for the borrower's residence and the loan was for the purchase or improvements to the residence, then the homeowner is not obligated to pay any tax on this 1099 phantom income.

When the homeowner has lost his house to a short sale or foreclosure, it is ridiculous to also create a phantom tax for any debt being forgiven. The borrower has already lost their home; why should the Federal Government pile on and create an additional income tax problem?  Several times, the Debt Forgiveness Act has been extended under the current and previous administration. However, the provision expired on 12/31/13 and has not yet been extended into 2014.

The following IRS web site provides current and additional information on this Act, for your reference: http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation-

 

Please write, call, or email your congressman and ask him or her to extend the Debt Forgiveness Act.

 
Contact me at 434-951-0858 or Tucker@TGBLaw.com if you have questions.

William D. Tucker, III
Tucker Griffin Barnes P.C.
Charlottesville, VA
434-973-7474
www.TGBlaw.com