On December 18, 2015 President Obama signed a bill extending the Mortgage
Forgiveness Debt Relief Act through December 31, 2016.
What that means is that people with homes that are underwater (meaning
they owe more than they are worth) can still sell their home through a
short sale without being taxed on the amount of the mortgage debt that
is forgiven. Without the benefit of this Act, when a home is sold the
owner is then taxed on the amount of money that the bank didn’t
collect on their loan. Most people lose their homes because they cannot
afford the payment, so adding an additional tax after the loss of their
home can be and is usually financially devastating to the seller.
During the height of the recent “economic downturn” hundreds
of people lost their homes, today that number is much less; however, there
are still people out there that are holding out trying to keep a house
that is worth less than what they owe on it. This Act gives people a huge
advantage in getting out from under the debt, but no one knows how long
the government will continue to extend the Act. The Act was originally
enacted in 2007 and it wasn’t extended until late December in both
2014 and 2015. So, no one knows and if you don’t take advantage
of it in 2016, it might not be available in 2017, especially with another
presidential election looming.
The Act also allows debt forgiveness of up to $2 million to NOT be considered
as taxable income to the seller
The house has been used as the
principal place of residence for at least two out of the last five years.
The debt that is owed on the residence has been used to
buy, build or make substantial improvements to the home. (i.e., if you took a loan out on the house and used the money
for a vacation, you will not qualify for forgiveness of the debt under the Act).
So, the bottom line is – if you are still holding on and trying to
save a house that is worth less than what you owe, 2016 is the time to
bite the bullet and get rid of it. Take advantage of the Act before it
Owens and Perkins is no longer assisting people with short sales, but the
information contained herein is important and people need to know their options.
Owens and Perkins provides legal representation in the areas of family
law, criminal, DUI, probate, trust administration and trust litigation.
If you would like to schedule a 30 minute free consultation with one of
our experienced lawyers in any of those areas, please call 480.994.8824.