Hello All:
This just came to my attention, so I thought I would pass it on to you my fellow real estate investors and friends.
In late December, President Bush signed the 2007 Mortgage Foregiveness Debt Releif Act, which provides tax help for homeowners facing foreclosure or who sell their homes in a short sale.
Previously, if the value of your home declined and your bank or lender forgave a portion of your mortgage debt, the tax code treated the amount forgiven as income that could be taxed, according to the IRS.
In other words, if your lender forgave $20,000 in mortgage debt because your house was worth $20,000 less than your mortgage balance, the IRS treated this debt forgiveness the same as income that you earned from your job -- and required you to add $20,000 in phantom income to the amount of your annual income and pay tax on it at your marginal tax rate.
So as you can see this will be an added benefit you can explain to the homeowner, which in days gone buy became another devastating event to losing their home. It should be noted however, that if a bank or mortgage company decides not to 1099 Misc an individual, but rather decides to seek a "Short Fall Judgment / Summary Judgment" the above act will not be of use.
I hope this was of value.
James Gage
