At the height of the housing crisis, Congress passed the Mortgage Forgiveness Debt Relief Act of 2007, designed to provide some consolation to folks who had lost their homes.
In summary, the Mortgage Forgiveness Debt Relief Act states that if you borrow money (up to $2 million dollars) from a bank or a commercial lender and the lender cancels or forgives the debt (a.k.a. Short Sale) then you are not responsible for paying taxes on the forgiven amount. This applies only to primary residences, NOT investment properties.
The Mortgage Forgiveness and Debt Relief Act applies to debt forgiven in calendar years 2007 through 2012. As of today, it has not yet been determined if the Mortgage Forgiveness Act will be extended past 2012.
Upon the completion of a successful short sale transaction, your bank is required by law to provide the IRS with a Form 1099-C. The 1099-C will show the IRS the amount of debt which was cancelled or forgiven. Before December 20, 2007, (this is the date which the Mortgage Forgiveness Debt Relief was enacted) the amount of forgiven debt was considered to be taxable income. This is no longer the case for primary residences; however, all this could change if the Mortgage Forgiveness Act is not extended.
As one of the most frequent questions that we are asked regarding short sale transactions involves the tax consequences of these situations. There is a tremendous amount of mis-leading and “completely false” information floating around on the internet. Of course as a State of Michigan Realtor, I am not licensed to give tax advice, and thus will strongly suggest that you always consult with a licensed CPA or attorney when dealing with these matters; however please click the link to view the Mortgage Forgiveness Debt Relief Act as it appears on the IRS web site (click link) http://www.irs.gov/
For more information, call me, I am here to help!!!!
Thinking about a short sale? I can help you short sale your property and never pay the bank another penny. Send me Lori Brown an e-mail at Lori@LoriBrownSales.com. I will contact you for a free consultation.
When we talk, I will explain how the process works in detail and answer any questions you may have. Or, if you prefer, you can call me Lori Brown at 810-543-8896
Thanks for reading, Lori Brown.
Lori Brown is a CDPE-Realtor at RE/MAX Advisors.
Office 586-725-1900 Email Lori@LoriBrownSales.com
Lori Brown specializes in assisting homeowners facing financial difficulties in Macomb and St. Clair Counties, including all areas of Southeastern Michigan. By exploring options to avoid foreclosure through dignified solutions including the short sales process, clients receive sound real estate advice.
Support4 Sellers.com is a helpful resource that offers homeowners alternatives besides foreclosure or bankruptcy that can affect their credit for years.
We are currently offering our services in Bruce Township, Washington Township, Armada, Ray Township, Richmond, Lenox, Shelby Township, Macomb Township, Chesterfield Township, Sterling Heights, Clinton Township, and Harrison Township in Macomb County and Berlin Township, Riley Township, Wales Township, Kimball Township, Port Huron, Columbus Township, St. Clair Township, Casco Township, China & East China Townships, Ira Township, Cottrellville Township, Clay Township and Algonac in the St. Clair County areas.
IMPORTANT GOVERNMENT DISCLOSURE: You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender (or servicer). If you reject the offer, you will not have to pay us for our services. The above brokerage is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.