Congress is again looking at the Mortgage Forgiveness Tax Act to possibly re-enact and hopefully retroactive to the beginning of 2014. This Act expired at the end of 2013 and if not re-enacted will require those individuals you had either a foreclosure or short sale in 2014 to pay income tax on the unpaid debt. The amount of debt forgiven in reported on a 1099C which is sent to the taxpayer.

What does this mean? If a homeowner did a short sale and the lender forgave $40,000, then the homeowner is responsible for paying income tax at their current tax rate for the amount forgiven. The debt that is forgiven shows up as Income to the borrower.

Some estimates show that there are over 5 million homes in the U.S. still upside down. While some areas have recovered, many parts of the Country have not. And in many instances if people are unable to pay their mortgage, how will they pay the taxes owed on the “fake income”?

According to the Washington Post, “Most Capitol Hill experts say there’s a good chance the bill will pass.” We can only hope

About Linda Urbick Linda

has written 261 articles on this blog.

Filed under: Real Estate

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