The Mortgage Forgiveness Debt Relief Act was put into place back in 2007. The law essentially says that if you go through a foreclosure or short sale, you will not have to pay taxes on the forgiven mortgage.
You’ll need to be very careful here, because there selling a home – even through foreclosure – has many tax implications. According to the IRS:
The Mortgage Debt Relief Act of 2007 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, qualifies for the relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
The law was extended through 2013 as part of the “Fiscal Cliff” negotiations you may have heard about this past November and December.
With the law extended, now is the time to act if you are facing a short sale. Most short sales take three to six months, and longer in some cases.
Call Linton Hall Realtors today to find our if we can help you with your short sale, or to speak with one of our experts. We’ll take the mystery out of the process and help you through it every step of the way.
703-485-4663
