As we enter into the heart of the 2016 tax season, it is important to remember that December 31st will mark the end of the Mortgage Forgiveness Debt Relief Act. This means that after the end of this year, if a home is sold on a short sale, the seller will need to report the amount of mortgage debt that is forgiven as income on their income taxes. Hence, if a homeowner is going to sell their property on a short sale, they should consider doing so within the next several months.
Individuals contemplating such a sale should know that the law requires that the property must be the individual’s principal residence and that the mortgage loan must have been used to buy, build or make substantial improvements to the home.
The amount of canceled debt is reported by the lender via Form 1099-C. Those qualifying for the exclusion must then file Form 982.
Passed in response to the housing market collapse, the act was signed into law by President George W. Bush in 2007 for the period up to 2013. It was subsequently extended until 2014 and again until 2015. On December 18, 2015, President Obama signed a bill extending it once more until the end of this year.
Homeowners considering a short sale and/or who are in bankruptcy (or about to enter into bankruptcy) would be wise to ascertain how they may benefit from this act over the next few month.
For more information, contact Berry, Sahradnik, Kotzas & Benson attorney, Mat Thompson. He can be reached at 732-349-4800 or via email at email@example.com.