The Mortgage Forgiveness Debt Relief Act and Debt Cancellation.
Right now most borrowers and sellers seem to qualify for this relief, exempting the "income" they earn on the short sale debt forgiveness as taxable income.
This is currently set to expired at the end of this year, 2012.
- Do you think this will be extended?
- What do you think will happen to the short sale business and industry if this is not extended?
- Would a lot of people rather face a foreclosure than a IRS after a short sale is completed?
What are your thoughts?
http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation-
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Has anyone heard anything new about this? I don't think it's going to be extended because it was a Bush Era tax cut and the Obama administration has said they are doing away with many tax breaks. I would hate to see people who are all ready struggling be pushed further into their hole of debt.
The homeowner would get 1099 the same through a foreclosure than a short sale, more than likely the 1099 would be for a higher amount since the banks get less money for properties as a foreclosure than a short sale.
This is from the IRS link...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.
Hopefully it will be extended andf if it doesn't we will see a sharp decline on strategic defaults but the people that have real hardships have other ways around paying taxes that they can discuss with their CPAs, like insolvency.