Thread: H.R. 3648: Mortgage Forgiveness Debt Relief Act of 2007

Hey,

In normal circumstances when you have a chunk of debt forgiven, that amount is counted as taxable income by the IRS. Which is silly as if your struggling & don't have the money to pay of the debt in the first place where do you get the money to pay of the taxes on the debt!! This Act will create a 3 year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive.

So hopeully this could help you keep your home!

Hope this is of some use but if you have a specific scenario may be able to better help.

J

that's not how I understand it, the TYPE of debt that is forgiven is critical to the tax exemption, that's the clarification I'm looking for, what my research says is that any loan that was not obtained to ACQUIRE the property (refi, 2nd, heloc, etc) is NOT allowed to be exempt from taxation, here is an example I found to illustrate the point, I'm looking for verification that this is true in which case people need to be careful on their short sales in that they might get taxed on it after all.

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Of greater relevance is the fact that, to be excluded, the debt discharged must be acquisition debt. That is, the mortgage must have been used to purchase the home. Suppose, for example, that you have lived in your home for twenty years, that you bought it back when it was "only" $200,000, and that, by now, you have refinanced it up to $650,000. Suppose, also, that your neighbor purchased his home just last year, and that he took out a $650,000 mortgage to finance the transaction. Now, both of you need to sell and your homes have decreased in value to $600,000. If you both are granted short sales by the lender, you will both have mortgage debt forgiveness of $50,000. Under H.R. 3648, his debt forgiveness will not be taxed because it was acquisition debt. Yours, however, will be. Bummer.
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also, who's job is it to tell the IRS of the debt forgiveness? the lender that forgives the debt? are the bound by law to 1099? do they have ability to not 1099 if they don't want to?

my situation is in a post called "foreclosure best option?" (i can't post links yet)

I'm so far upside down that given the option of short sale and 100k tax burden vs. foreclosure, I'll take foreclosure, now if I can short sale and not be taxed, then that is clearly a better option

so i need to make damn sure i understand the DETAILS/RESTRICTIONS of the new legislation...

I'm meeting with a loan officer friend in a couple of days, will do some enquiring and see if i can find some more out... watch this space.

also, who's job is it to tell the IRS of the debt forgiveness? the lender that forgives the debt? are the bound by law to 1099? do they have ability to not 1099 if they don't want to?

I'm not quite sure of the intricacies of US tax laws, but as a rule, whoever has to report a taxable sum of money, HAS to report it, or THEY get charged with a felony. So if it's the lender that has to tell the IRS [as seems unlikely], then they have to tell the IRS. I suspect, however, that it is you who should do this, by means of your ordinary tax return form. But IANAL, and I suggest you should consult one.

Don't ask real estate agents about tax laws...find a good CPA or Tax Attorney.

They'll be able to discuss your REAL options with you.

Good Advice from OrlandoMLS.

Years ago I use to work for a CPA who would represent people who got all there advice from others and who the CPA would have to get corrected with the IRS and charge them to do it.

Most CPA's will meet for 15 minutes for free to assess the situation or even a free phone call (exception March/April). If there services are needed they offer to assist.

Talk to a tax expert. Typically these rescue deals that come out of capital hill are more fluff than substance.

Hello, I'm trying to sell my house in Michigan. We have had it up for sales for 2 months, and had only one showing. We can't lower our asking price any lower then it currently is without having to come to closing with money. Since our realtor already lowered his commission he suggested talking to our mortgage company about a short sale. What is your opinion? Thanks a lot.