If you are one of the smart homeowners who were involved in mortgage restructuring or a short sale in 2012, tax time is an IMPORTANT season for you. There are tax implications associated with debt cancellation/mortgage forgiveness. For those who have been involved this year, here are instructions and tips from Seattleshortsaleblog on how to take advantage of the Mortgage Forgiveness Debt Relief Act that was extended until 1/1/2014!
Here is an example of your liability if the debt relief act did not get extended or if you do not follow tax instructions posted here: Example: If you owe $150,000 on your home and it sells in a foreclosure auction for $100,000, the amount remaining of $50,000 would be taxable income. If you are in the 25% tax bracket, you will have to pay the IRS $12,500 in taxes on the foreclosure.
The Mortgage Forgiveness Debt Relief act allows you to exclude this income on your taxes but you must take action.
Here are instructions directly derived from the IRS Website. Read the full page HERE
It is vital to follow these steps after any type of mortgage forgiveness. Please read through these instructions & tips. Also, make sure you are reboosting your credit!
Feel free to contact me at [email protected]
Good luck!
Peter
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