The Clock Ticks When Tax Forgiveness Due To a Short Sale Is Concerned
An important aspect of the short sale process is not going to be out there forever. Time is ticking on what is known as The Mortgage Forgiveness Debt Relief Act of 2007, which Congress passed to provide some relief to those folks who have lost their homes in the short sale process. The law does state that only debt forgiven in the years of 2007 through 2012 is eligible for this most valuable tax relief. What many people perhaps don’t realize is that the amount of one’s mortgage that is “forgiven” by the mortgage holder becomes a taxable amount. It is treated as if this amount is income.
However, under this Relief Act, provided certain parameters are met, the amount is not taxed. To qualify for the relief, the debt must have been used to buy, build or significantly improve one’s primary residence and it must have been secured by that residence. If the money was, instead, for instance, used to buy a second home or a rental property or if the money was taken to pay off credit card bills or simply for living expenses, then these situations do not qualify for the relief. If you happen to think that you are headed in the direction of a short sale (which is typically anything but short) then you might want to consider speeding up your plans to make that happen so that you are able to take advantage of this tax relief.
