Short Sale Mortgage Debt Relief Act Extended – Redding CA
Mortgage Forgiveness Debt Relief extended through 2013
For huge numbers of financially distressed property owners of homes with underwater mortgages, this was the biggest issue in the entire fiscal cliff debate. The mortgage debt relief act provisions in the IRS tax code, first enacted in 2007, expired at midnight Dec. 31 on 2012.
Had Congress not acted, the IRS tax code would have reverted to its pre-2007 treatment of mortgage principal reductions or cancellations by lenders and banks, whether through loan modifications, short sales, deeds-in-lieu or foreclosures: All principal balances written off would be treated as ordinary income to the homeowners who received them.
For illustration, if a lender wrote off $80,000 of debt to facilitate a short sale, the seller would be taxed on that $80,000 at regular marginal rates, just as if they had earned it as income salary.
A return to taxation of principal reductions would have disrupted short sales , a growing segment of the home real estate market in 2013, and almost certainly would have encouraged more struggling home owners to take foreclosure and or bankruptcy.
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Short Sale Mortgage Debt Relief Act Extended – Redding CA
