The Mortgage Forgiveness Debt Relief Act of 2007 is Expiring
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Example: before 12/31/2012, If you owe $300,000 and the property sells for $200,000. The $100,000 difference in reported income is NOT taxable in most cases*
| Short Sale or Foreclosure Before December 31, 2012 | Short Sale or Foreclosure After December 31, 2012 |
| 100K @ 0% = $0 in additional taxes owed to the IRS* | $100K @ 35% tax bracket = $35K in taxes owed to the IRS* |
| This is Good |
This is BAD! |
President Bush Signs H.R. 3648, The Mortgage Forgiveness Debt Relief Act of 2007. The bill is the single reason that Short Sales have been so successful WITHOUT HAVING TO USE BANKRUPTCY!
So what are other homeowners doing? Many homeowners that are considering a short sale or a loan modification have decided that instead of waiting for the market to come back they are opting to sell their house now and get out while the getting is good! If you owe more than your house is worth, it will take years to break even. If you decide to sell your house BEFORE you break even, there will be debt that is settled by the lender. Pursuit of a short sale AFTER this deadline expires will be subject to additional tax liability.
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