According to a preliminary report released by LPS, 2,060,000 properties are in foreclosure inventory. As of the end of the 2011 fourth quarter, 11.1 million borrowers were reported to be underwater, according to CoreLogic.
That’s a lot of potential debt to be forgiven, and through the Mortgage Debt Relief Act of 2007, homeowners get a break from paying taxes on their forgiven debt – whether it was forgiven through a short sale, foreclosure, or a modification. The act though, is set to expire at the end of this year.
“The scheduled expiration of the mortgage debt relief law means a whole lot of uncertainty for a whole lot of underwater homeowners who are in the process of foreclosure,” said Lance Denha, Esq., of the Law Offices of Lance Denha.
If extended, this could lead to thousands in savings for the individual borrower. For example, depending on one’s tax bracket, every $10,000 in forgiven debt could incur as much as $1,500 to $3,500 in federal taxes. Thus, if $100,000 in mortgage debt is forgiven after a foreclosure, this could mean $15,000 to $35,000 in taxes owed for the borrower.
The Law Office of Lance Denha warned that rushing to hand over a deed before the December 31 expiration date could become a mistake though if Congress ends up extending the debt relief act, which it may.
“Obama did include it in his budget, to extend it to 2014,” said Mark Luscombe, a principal analyst for tax research firm CCH, in a statement. “Congress….. might decide it’s not as crucial as extending the tax breaks that already expired at the end of last year.”
That doesn’t mean Congress won’t eventually act to extend the relief, Luscombe said.
“Usually the only fight about these things is finding a way to pay for it,” he said.
The administration is proposing to extend the act until January 1, 2015.
The criteria to have forgiven debt excluded as taxable income is the debt must be from a primary residence and the debt must be used to buy, build or substantially improve a primary residence.
Also, the exclusion applies only to acquisition debt up to $2 million, or $1 million for married taxpayers filing separately.
The Law Office of Lance Denha is a multistate law firm that helps defend wrongful foreclosures against homeowners.
Source DSNews.com by Esther Cho 04/27/12
www.chicagolandhomegallery.com Gerard Scheffler
