MORTGAGE DEBT RELIEF

How will expired Mortgage Debt

Relief Act impact

homeowners?

Statistics for Underwater Properties A house is “underwater” when it is worth

less than the outstanding mortgage debt

Today, statewide nearly 29% of all homes in the State of Florida remain underwater.

Florida is ranked second in nation for highest percentage of underwater homes in the country. At peak of housing crisis, nearly half of all homes in Florida were underwater.

38% of all homes are underwater

25% of all homes are underwater

County with highest rate of underwater homes in FL?

43% of all homes are underwater

Latest statistics on underwaterproperties

When you borrow money you are not required to report the loan proceeds as income for tax purposes because you are obligated to repay the loan.

Cancellation and Forgiveness of Debt

If the obligation or portion of the obligation is subsequently forgiven, the forgiven portion of the loan is normally reported as income because you no longer have an obligation to repay the loan.

You borrow $10K and default on the loan after paying back $2K. If the lender forgives the remaining debt, there is a cancellation of debt of $8K, which is generally taxable income to you.

The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

Cancellation and Forgiveness of Debt

If person in a 25 percent tax bracket had a $400K mortgage, short sold his home for $300K, and the lender forgave the remaining indebtedness, then the homeowner could end up owing the IRS $25,000.

Tax Liability is Generally Imposed on any Forgiven

Debt

Mortgage Debt Forgiveness Which Generally Results in

Tax Liability Includes:

Short saleDeed in Lieu of ForeclosureConsent foreclosuresForeclosuresLoan modifications with principal forgiveness

Short refinance

Mortgage Forgiveness Debt Relief Act

Provided tax relief associated with mortgage debt forgiveness on principal residence

Tax break saved distressed property owners thousands of dollars

Enacted in 2007 and extended twice

Expired December 31, 2013

Is Cancellation of Debt Always Taxable?

Not always. Some exceptions include:Qualified principal residence indebtedness:

To date, this exception created by the Mortgage Debt Relief Act, is no longer available, because the Tax Relief Act expired on December 31, 2013 and has not been extended.

Some Exceptions to Paying Tax on Canceled Debts

Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.

Some Exceptions to Paying Tax on Canceled Debts

Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.

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