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Tax break for struggling homedebtors set to expire


By Patrick   Follow   Wed, 7 Nov 2012, 12:45pm PST   1,138 views   10 comments
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http://money.cnn.com/2012/11/07/real_estate/mortgage-forgiveness-tax-break/index.html

If the Mortgage Forgiveness Debt Relief Act of 2007 does not get extended by Congress by the end of the year, homeowners will have to start paying income taxes on the portion of their mortgage that is forgiven in a foreclosure, short sale or principal reduction.

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Bellingham Bill   Wed, 7 Nov 2012, 1:31pm PST   Share   Quote   Permalink   Like   Dislike     Comment 1

Good ol' lamestream media being incorrect.

iwog can correct me, but if there's no judgement possible (as in purchase-money loans and liens), there is no actual loan forgiveness to be taxed.

Title to the house just goes back to the beneficiary and that's the end of it, other than the ding to FICO and associated credit penalties.

David9   Wed, 7 Nov 2012, 1:34pm PST   Share   Quote   Permalink   Like   Dislike     Comment 2

LOL, love the real headline using correct English term 'homedebtors'.

Hmm, this in itself is reason not to rush on any foreclosure.

bmwman91   Wed, 7 Nov 2012, 3:09pm PST   Share   Quote   Permalink   Like (2)   Dislike     Comment 3

At this point, I would be super surprised if this "temporary" relief measure was ever repealed. I think that Webster needs to add a second definition for "temporary" for cases when the federal government uses it.

"Temporary (adjective). When used by any government official, see also 'permanent'."

thomaswong.1986   Wed, 7 Nov 2012, 3:20pm PST   Share   Quote   Permalink   Like   Dislike     Comment 4

bmwman91 says

"Temporary (adjective). When used by any government official, see also 'permanent'."

Yes.. thats about right.

bmwman91   Wed, 7 Nov 2012, 3:50pm PST   Share   Quote   Permalink   Like   Dislike     Comment 5

thomaswong.1986 says

bmwman91 says

"Temporary (adjective). When used by any government official, see also 'permanent'."

Yes.. thats about right.

I forgot one other one:
"see also: slumming for votes"

New Renter   Thu, 8 Nov 2012, 11:59am PST   Share   Quote   Permalink   Like   Dislike     Comment 6

robertoaribas says

the misinformation on this thread is stunning.

First off, even if your state is non recourse, like Arizona, you actually can and will owe the tax depending on your conditions. If the law is not extended (not repealed as posted above, the original law ended the end of this year)

even so, the law only provided tax forgiveness on your resident property, or on investment property if you were insolvent at the time of the foreclosure/short sale. I know people who let the investment properties go first, since that way they were still insolvent due to owing so much on their primary residence, and after all the investments were gone, let the primary residence go.

do not use any of this for personal advice, seek the help of a competent real estate/tax attorney for your own situation, this law is complex, and mistakes could be very expensive to you!

Word!

Bellingham Bill   Thu, 8 Nov 2012, 12:32pm PST   Share   Quote   Permalink   Like   Dislike     Comment 7

"In Arizona, this would mean you would not be subject to taxation for any deficiency between the property value and mortgage balance after a deed in lieu on a one or two-unit building so long as the loan or loans were taken out to purchase the property."

http://www.ehow.com/info_8764177_there-tax-liability-deedinlieu-arizona.html

?

Bellingham Bill   Thu, 8 Nov 2012, 1:41pm PST   Share   Quote   Permalink   Like   Dislike     Comment 8

robertoaribas says

except for our current tax law which is set to expire.

no, that's not what it says:

"Unless your debt falls into either an exception to or exemption from the IRS debt rules, you will be taxed on the value of any unpaid debt after a deed-in-lieu, in Arizona or any other state. One key exception to the taxation rule, according to the IRS, is non-recourse loans. Because a non-recourse loan prevents personal liability beyond the property itself, any unpaid debt is not viewed as income."

This is just my general understanding, that non-recourse loan defaults are not taxable income since there can be no deficiency judgment with them.

Bellingham Bill   Thu, 8 Nov 2012, 3:39pm PST   Share   Quote   Permalink   Like   Dislike     Comment 9

robertoaribas says

How can you be taxed if the bank is pursing the deficiency?

The bank's 1099-C to the borrower signals the change of pursuers from bank to IRS (if box 5 is checked)

Elwood P Dowd   Thu, 8 Nov 2012, 10:21pm PST   Share   Quote   Permalink   Like   Dislike     Comment 10

Bellingham Bill says

robertoaribas says

How can you be taxed if the bank is pursing the deficiency?

The bank's 1099-C to the borrower signals the change of pursuers from bank to IRS (if box 5 is checked)

Wouldn't a 1099-C indicate to you, to the world and whoever it is in the town hall that removes the lien that the bank has STOPPED pursuing?

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