Fiscal Cliff Tax Bill - Mortgage Debt Forgiveness

Posted by Helaine Cohen on Monday, January 7th, 2013 at 7:50pm.

Tax Relief on Mortgage Debt

Tax Relief on Mortage DebtRealtors, mortgage brokers and homeowners have all breathed a huge sigh of relief that tax relief on mortgage debt was part of the “Fiscal Cliff” legislation. Although this law has only been extended it will nevertheless have a positive impact on the market since it limits tax liability from short sales and workouts involving forgiven, deferred and cancelled mortgage debt and provides the continuation of alternatives to foreclosure. a reduction in foreclosure inventory is positive for home values.

This tax relief is of special benefit to upside down homeowners. The Mortgage Debt Tax Relief Act generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure or short sale qualifies for the relief. The tax relief is extended for one year and will allow underwater homeowners to short sell or modify their mortgages without additional tax liability.

This tax law was passed in 2007 and was due to expire at the end of 2012. The amount of eligible forgiven debt is $1 million single and $2 million joint and only applies if directly related to a decline in the value of the home or the financial condition of the homeowner.

The Mortgage Debt Forgiveness Act allows the homeowner of a primary residence to exclude from income certain cancelled debt on the principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. Debt used to refinance your home also qualifies for this exclusion, but only the principal balance of the old mortgage, before the refinancing, qualifies. This law only applies to a primary residence and is not applicable to secondary residences.

For more information on the tax relief on Mortgage Debt bill or the New Fiscal Cliff Tax Impact on Real Estate 

Contact Us at Chicagocondofinder.com or call Helaine Cohen at 312-953-0961.

 

Helaine Cohen, Chicago Real Estate Broker

Leave a Comment