Last year Congress failed to extend the Mortgage Debt Forgiveness Act. It was a very favorable tax benefit for short sale sellers that ended in 2013 It was a great law and was instrumental in facilitating short sales from 2007 through December 31st, 2013. We had hoped the bill would have been extended at the end of last year, but it wasn't. But at a recent “lame duck” session of Congress this week this bill came up again allowing this law with big benefits to homeowners to be extended again.
Basically those sellers who had forgiven debt in a short sale or deed in lieu of foreclosure or other forgiveness of debt on a primary residence in 2014 will now in most cases not have to pay income tax on forgiven debt which the government sees as a monetary gain. For example, if a mortgage of $350,000 was paid off with only $250,000 from a short sale, that would mean that the borrower would have an income gain of $100,000. If that taxpayer is in the 28% tax bracket, that would translate to a $28,000 tax bill on that transaction on the person's tax return for 2014. With the passage of this bill, there is no additional tax on this so called gain. The bill was attached along with about 50 odd other favorable tax bills into a package. It also included a sales tax deduction for the people in the State of Washington; deduction for mortgage insurance premiums; and, the mortgage debt forgiveness rule. Details are still being worked out in the Congress but it appears Congress will only extend this bill to December 31st, 2014 which is only a couple weeks away. At this time of year we'd like to see that extension until the end of 2015, but no such luck. But it is great news for sellers who have completed (or will complete) a short sale transaction by the end of the year.
Author:Michael Eisenberg Phone: 360-739-6981 Dated: December 4th 2014 Views: 460 About Michael: Michael was born and raised in Brooklyn NY. He graduated from Brooklyn College with a degree in Math...
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