Under normal circumstances, any debt that is written off is considered taxable income according to the Internal Revenue Service. Consumers are normally issued an income statement at the end of the year reflecting that amount, and must record this information when filing a tax return. That changed after the housing market crash, when Congress passed the Mortgage Debt Relief Act of 2007. That bill allowed homeowners to have part of their mortgage balance written off without worrying about the tax implications.
Relief under this law was intended to be only temporary, lasting through the end of 2012; however, Congress has elected to extend this benefit into 2013. This means that homeowners who are still underwater on their mortgage may be able to complete a short sale or ask for a modification to their mortgage without worrying about the tax implications of doing so.
In addition to mortgage loan forgiveness, there may be other instances in which consumers would not have to record debt that was written off. A few of these include debts discharged in bankruptcy, certain farm debts and instances of insolvency. When the lender’s only course of action is to repossess property, any amount left over after the sale of that property is also non-taxable.
The fact that the tax break concerning mortgages has been extended for another year is good news for many Denver area homeowners who are struggling to keep up with their monthly payments. Those who are already in arrears are encouraged to contact their lending institution in order to find out if negotiating a short sale might be in their best interest. Likewise, homeowners who are considering a loan modification may want to go ahead and do so while the tax advantage is still in place.
In some cases, bankruptcy might be a better option than conducting a short sale or undergoing a mortgage modification. Those who have a great deal of debt aside from their principal mortgage may want to consult with a bankruptcy attorney in order to make the most informed choice. http://bankruptcyattorney-
About the Company
Located in Denver, CO, Bankruptcy 5280 is a law firm dedicated to providing personal attention to clients who are seeking financial relief. Attorneys Russell Hebets and Colin McCallin want to give each person the bests care possible and therefore limit the number of cases they take on so they can ensure they do exactly that.
For a consultation, those in the Denver area can call (720) 356-0115.