249 Days to the expiration of the Mortgage Forgiveness Debt Relief Act

Are you aware that on December 31, 2012 the Mortgage Forgiveness Debt Relief Act is expiring?

Many homeowners are unaware of its existence or the fact that it is expiring on December 31, 2012. Mortgage Forgiveness Debt Relief Act applies to debt relief “forgiven” between January 1, 2007 and December 31, 2012 and it doesn’t look that it will be extended.

The Act is important for homeowners facing foreclosure and homeowners doing short sales because:

When you, as a homeowner, do a short sale for example, your lender “forgives” you the difference between your mortgage and what the house sells for. Ordinarily, that forgiven amount is taxable. However under the Act, the forgiven amount that would be ordinarily taxable is eliminated.

Here are some caveats that come along with this Act:

The forgiven debt must be related to a principal residence. You must have lived the last 2 years out of 5 in the residence.

The total amount of the debt can’t exceed the borrower’s original mortgage loan… plus the cost of improvements made to the home.

You must report the forgiven debt to the IRS. Talk about this with your tax professional.

Visit the IRS site for information on the Mortgage Forgiveness Debt Relief Act, which can be found on the IRS’s website.

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