Some Good News for Troubled Homeowners
The Senate Finance Committee approved the extension of the Mortgage Forgiveness Debt Relief Act of 2007. This is a good sign that the Mortgage Forgiveness Debt Relief Act will be extended. For those unfamiliar with the Mortgage Forgiveness Debt Relief Act of 2007 :
Usually, when a debt is forgiven or reduced, the lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C. The amount forgiven or reduced is considered income. Like all income, this amount will be taxed. During the housing crisis, many homeowners facing foreclosure have been able to modify their mortgages or complete a short sale of their home. And sometimes a lender will forgive a portion of the principle. The amount forgiven would normally be considered income, and would be taxed. For example, if a bank forgave $50,000 of a mortgage debt, the homeowner would owe income tax on that $50,000. That would be hard on people that are already struggling, and would potentially defeat the purpose of the modification. Congress saw that this was a problem, and, in 2007, enacted a law exempting the amounts forgiven by mortgage companies from income tax. This law is set to expire on December 31, but the Senate Finance Committee recently voted to extend it. This is good news for homeowners facing foreclosure, but not great news. More still needs to be done!
If you have questions about this or other legal issues, call The Law Firm of Vaughn and Weber at 516-858-2620 to schedule a free consultation.
*Contributions to this article were made by Jason Mays, J.D.