Mortgage Debt Relief Act extended to end of 2013!!!

Here at Team Reba we’ve been pushing everyone who’ll listen to support the extension of the Mortgage Debt Relief Act so that homeowners experiencing a short sale or foreclosure do not have to pay tax on the ‘forgiven’ debt on their underwater mortgage. This is fantastic news to start the New Year!

Why is it such good news?  Because there are still many homeowners who are "underwater" on the value of their home. While our unemployment rate has gotten  better (9.3 down to roughly 7.8%) we still have many people not working or in jobs that pay less than they used to make. This means we have homeowners who may still be unable to make their house payment and who will need to do a short sale of the property.

Not everyone realizes that when a debt is "forgiven", whether it be credit card debt, mortgage debt, or similar that this is considered income in the eyes of the IRS and tax is often due once the debt is recorded with them via a 1099 form. To have the extension of the MDRA till end of this year provides a possible way for a homeowner to consider a short sale without incurring a major tax bill at the end of the process on a first lien.

This debt can also be incurred in a foreclosure so either way a homeowner chooses to go, this will assist in relieving surprise debt after the fact on first lien mortgages. This does not always apply to 2nd liens or HELOCs so it's always a good idea for homeowners to get an attorney or CPA to discuss the potential overall implications of short sale and/or foreclosure on their individual tax situation.