One of the major concerns for homeowners going through a short sale or deed in lieu of foreclosure has always been the potential for tax consequences. While a 2007 bill has provided for relief of such tax consequences, the expiration of the bill at the end of this year could bring trouble for homeowners.
Prior to the Mortgage Forgiveness Debt Relief Act of 2007, homeowners who had mortgage debts restructured or deficiency balances waived were required to claim this amount as income on their tax return. Since the act when into effect, homeowners who had portions of their mortgage debts forgiven were able to claim this amount without being held liable for the taxes. The act allowed for homeowners to avoid liability on claims of mortgage debt forgiveness up to $2 million since 2007.
This tax break bill is set to expire at the end of 2012 and is at risk of not being renewed. Many members of Congress are opposed to the renewal of this tax bill, which could leave many homeowners with a hefty tax debt if they seek relief through a short sale in the future. This bill will continue to receive a strong push for renewal as industry experts see it as a much needed extension of an already effective strategy that is in place. Many are concerned that mortgage industry recovery will have less of a fighting chance if the bill is not renewed by the end of the year.