Mortgage Forgiveness Debt Relief Act

noreply@blogger.com (JR Premier Properties) — Sun, 16 Mar 2008 03:25:00 +0000

Congress and the White House take a little pressure off home owners with pre-foreclosure opportunities –The Mortgage Forgiveness Debt Relief Act– which means distressed home sellers get a helping hand from big brother.

What's the Mortgage Forgiveness Debt Relief Act?, it prohibits the IRS from demanding income tax payments from home sellers whose lenders write-off a percentage of the outstanding debt balance owed on the loan. The act rocketed through the Senate and the House in the final 10 days of the Congressional session and President Bush, signed the bill into American law on December 20, 2007

Earlier versions of the bill made the tax code change permanent, the final bill limits the relief to sales and other loss-mitigation transactions that occur before January 1, 2010.

It's biggest advantage is for investors and Realtors. The legislation -- which is in effect now -- should calm the fears among home owners who are financially stressed, that participating in a short sale will leave them exposed to heavy taxes the following year. Delinquent home owners steering for foreclosure had to factor a federal tax code into their decisions on whether to participate in a short sale or other type of debt forgiveness.

For example, before this new law, if a lender chose to write off $50,000 of mortgage principal to facilitate the sale, federal rules required it to file a Form 1099 to the IRS to alert it to the home sellers' $50,000 debt relief "windfall." Then the IRS would seek the sellers. Thus, essentially slapping them while they were down and demanding income taxes on the debt forgiven, including penalties in some cases.

Sellers would not receive one single dollar of the actual income – invisible income – but they would be clobbered by a tax bill at their full regular rates as if they had used $50,000 on a trip to Maui.

So, for now that tax burden has been removed from the table until 2010. Meanwhile, investors and Realtors should encounter one less objection by home sellers wanting to participate in a short sale, creating a win-win-win outcome for everybody involved.

Now lenders and home owners will avoid the financial losses normally found in foreclosures. Investors can now acquire, renovate, rent out or resell houses at deeply discounted prices.

About the author: Jame Exum is a Realtor® at JR Premier Properties, located in Dallas, Texas. We are Real Estate Specialists, representing buyers, sellers, investors or other clients as an exclusive agent. Ignite your real estate experience and benefit from everything real estate has to offer you. Today.

JR Premier Properties Customer Service (214) 499-7413 18170 Dallas Parkway, Suite 303, Dallas Texas 75287 E-mail: webmaster@jrpremierproperties.com

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Mortgage Forgiveness Debt Relief Act