Did you know that the Mortgage Forgiveness Debt Relief Act of 2007 is expiring at the end of this year? Did you know that this will probably impact you or someone you know? Most people don’t even realize this exists let-alone that it is expiring. Tick, tock, tick, tock.
Obama already extended this once back in 2009, but it is not expected to happen again.
So what does this mean?
Normally, borrowers would be required to pay taxes on the forgiven mortgage debt amount. However, the Act was created to relieve former homeowners of their obligation to pay taxes on the difference between their loan amount and the amount their property fetches through short sale or foreclosure. At the end of this year, if the program is not renewed, these individuals must claim this amount on their taxes and pay the appropriate taxes.
What? That is not ok!!! This will seriously lead to financial disaster for those not prepared to pay the additional taxes.
This means that time is of the essence. If you are underwater, foreclosing, or heading in that direction, now is the time to deal with this. Consult a tax person first, then call your Realtor.