As of January 1, 2014, homeowners who are able to get part of their mortgage
debt forgiven through
short sales (as alternatives to foreclosure) will now have to worry about having to
pay taxes on that forgiven debt. This is due to the fact that a tax break
that provided temporary relief from this type of tax obligation is set
to expire at the end of this year, according to
CNN Money. The tax break that is expiring is the Mortgage Foreclosure Debt Relief
Act. Individuals who are considering short sales as a way of avoiding
foreclosure will need to be aware of this change.
To further explain how homeowners will be affected, let's consider
a hypothetical example of a short sale. Let's say Tim's home has
a mortgage of $350,000 and he is facing possible foreclosure. Because
the value of his home is lower than the value of his mortgage, he is only
able to sell the home for $250,000. Tim strikes a deal with the bank,
which allows him to sell the house for that amount and have the remaining
mortgage balance forgiven by the bank. Previously, under the Mortgage
Foreclosure Debt Relief Act, Tim would not have to worry about paying
any taxes on that $100,000. With the tax break ending, the $100,000 would
actually become taxable.
According to CNN Money, the National Association of Realtors (NAR) says
the new rules for taxing forgiven mortgage debt may affect almost 10 million
Americans, considering that this is the volume of homeowners in the U.S. who have
underwater mortgages (or mortgages that are worth more than the properties themselves). There
is always the possibility that the tax break could be extended before
the end of the year, but some say the chances of that are slim, according
to the article.
While the legislative changes mentioned above may create more barriers
for individuals in choosing short sale as a method of
foreclosure defense, this does not necessarily mean that the short sale option is not for
you. At Whiteman Borden, LLC, we have a
Chicago foreclosure attorney who can discuss your mortgage debt issues with you and help you determine
whether you would benefit from a carrying out a short sale. If so, our
lawyer can assist you with the actual
short sale negotiation. If a short sale is not the best option for your, there are also other
foreclosure defense options that may work for. Attorney Jerry Borden remains
up-to-date on the legislative changes regarding the housing industry,
so he is well-equipped to provide you with the information you need.
Contact our firm so we can start assisting you!