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Mortgage Debt Relief Act Extended Through 2013

Tax Relief Act For Short Sales and Foreclosures In Effect Until 2014

Great news on the housing front! As part of the 2013 Fiscal Cliff negotiations, the Mortgage Debt Relief Act has been
Mortgage Debt Relief Act extended through 2013extended through 2013.

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Originally passed in 2007, the Mortgage Debt Relief Act gives homeowners who short sell their property the opportunity to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage refinancing or loan modification, as well as mortgage debt forgiven in connection with a foreclosure, qualifies under this act as well.

The Mortgage Debt Relief Act originally applied to debt forgiven between the calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible under this act, or $1 million if married filing separately. This will not apply if the forgiveness of debt is due to services performed for the mortgage company or lender, or any other reason not directly related directly to a decline in property value or the homeowner’s financial status.

How Does the Mortgage Debt Relief Act Affect Someone Facing Foreclosure?

In a nutshell, if you are upside down on your mortgage and are potentially facing foreclosure, you will not be liable for the taxes due on the difference between the final selling price of your home, and your home loan amount (provided the loan amount is larger than the selling price of your home), if you short sell your property.

Remember also that the benefits of short selling rather than allowing the bank to foreclose on your property are rather sizable They include:

No out-of-pocket costs normally associated with the sale of your home including realtor commissions, title fees, escrow fees and closing costs.
The ability to purchase a home much more quickly (as little as 2 years) under qualifying conditions versus 7 years if you allow your home to fall into foreclosure.

There was a lot of speculation as to whether or not the mortgage debt relief act would be extended in 2013. We were extremely excited when we found out that it was extended because of the great benefits this exemption provides to those considering short sale.

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