Tax Alert! The Mortgage Forgiveness Act is Set to Expire at the end of 2012
As many of you who have had a short sale or home forclosure know, under ordinary United States tax law, a short sale produces a tax liability. When a lender agrees to accept a short sale, the amount of mortgage debt forgiven is considered to be income for the borrower and is therefore subject to taxation by the IRS.
In 2007, the passage of the Mortgage Forgiveness Act served to protect homeowners from this potential tax burden. With the passage of the Mortgage Forgiveness Act, the amount of debt forgiven in a short sale was excluded from being a tax liability. Although this tax liability protection covers most short sales, it does have the following limitations:
• It applies only to the sale of a primary residence, not a second home or a rental property.
• It usually does not include home equity loans.
• The maximum amount of debt forgiveness is $1 million.
We often get calls from taxpayers who are very concerned about this type of liability. With our headquarters located in California, the home value crisis and the potential tax burden is top of mind. Because our CPAs know and understand the laws and regulations for recourse and nonrecourse loan structures, we have helped many clients remove liability for the gain that results from the short sale or foreclosure of a primary residence or from a bankruptcy filing.
Why the tax alert? The Mortgage Forgiveness Act will expire in 2012 unless Congress votes to extend it.
Already facing a short sale or forclosure? Call or contact us today to get your liability removed before it is too late.Click the “Learn More Link” or Call (877) 889-6527 to have one of our CPAs provide a Free, no obligation consultation.
