GREAT NEWS FOR HOMEOWNERS STILL UNDERWATER BUT YOU SHOULD ACT NOW

GREAT NEWS FOR HOMEOWNERS STILL UNDERWATER BUT YOU SHOULD ACT NOW

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 The Act was originally enacted in 2007 and it wasn’t extended until late December in both 2014 and 2015.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 if:

  1. The house has been used as the principal place of residence for at least two out of the last five years.

AND

  1. 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 goes away.

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.

Categories: Family Law

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