Mark Lentz Real estate serving Tamarac FL
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How Is A "Short Sale" Treated Tax Wise?

 

Under the United States Federal Tax Code, any debt that is forgiven, including mortgage debt, is treated as income and, therefore, subject to income tax.

 

In 2007 the government addressed this issue and enacted the Mortgage Forgiveness Debt Relief Act of 2007 (Dept Relief Act). This act offers relief to homeowners who would formerly owe taxes on forgiven mortgage debt after facing foreclosure, short sale, or deed in lieu of foreclosure. The relief basically is that they are not taxed on the forgiven mortgage debt.

 

Once the lender writes off the debt, the amount written off is reported to the IRS. Homeowners should receive Form 1099-C showing the canceled debt amount. That 1099-C is to be filed with your income tax.

 

That original Debt Relief Act extended relief for three years through 2009. When the Emergency Economic Stabilization Act of 2008 was passed the Debt Relief Act was extended for another 3 years through December 2012. The government passed another extension to the Debt Relief Act extending it through December 2013.

 

As of March 2014 the government has not extended Dept Relief Act into 2014.

 

For many, if the government does not extend the Debt Relief Act it will cost homeowners who lost their personal residence thousands of dollars in added taxes. If they extend the Debt Relief Act into 2014 homeowners will not have to pay income tax on mortgage debt forgiven up to two million dollars.

 

Please check with your tax professional for all applicable scenarios as not all mortgage debt is subject to the Debt Relief Act.

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