By: Karen L. Persis, Esquire
During the Fiscal Cliff negotiations, the Mortgage Forgiveness Debt Relief Act was extended through December 31, 2013. This is great news for homeowners who are considering a short sale on their principal residences. Generally, if a bank lends you money to purchase your home, and the bank later cancels or forgives the debt balance, you may have to include the cancelled balance as income for tax purposes. The Mortgage Forgiveness Debt Relief Act allows a homeowner to exclude this amount, which saves a homeowner thousands of dollars in tax liability.
For example, if a homeowner owes $200,000 on a home, and the homeowner and the bank agree to a short sale on the property for $75,000, there is a $125,000 principal balance left over. Without the Mortgage Debt Relief Act, the homeowner would have to pay federal taxes on the $125,000 balance, because the government would consider the $125,000 “earned income.” Because the Act is in place for 2013, the tax debt owed by the Homeowner will be waived, if the closing takes place in 2013. If you are considering a short sale of your principal residence, it will be beneficial to have it resolved this year so that you can take advantage of this Act before it expires.
The information contained in this Weblog (Blog) is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No recipients of content from this site, clients or otherwise, should act or refrain from acting on the basis of any content included in the site without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient’s state. The content of this Weblog (Blog) contains general information and may not reflect current legal developments, verdicts or settlements. The Meddin Law Firm, P.A. expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this Weblog (Blog).
The Meddin Law Firm, P.A. and Attorney Anna E. Meddin can help individuals, families, and spouses within the Florida Court system of Orlando, Central Florida and throughout the State of Florida. The Meddin Law Firm is located on “Attorney Row” in downtown Orlando at 1500 E. Robinson Street Orlando, FL 32801.
The Meddin Law Firm, P.A. | 407-392-2320 – www.meddinlaw.com