Congress has extended the Mortgage Debt Forgiveness Tax Relief Law
for two more years.
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loan owned by Fannie Mae? You may be eligible for a HARP 2.0 refinance. Call me for details.
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The Mortgage Debt Relief Act: What Is It and How It May Benefit
You
2013 marked the passing of H.R. 8 legislation in the House and
Senate which includes the extension of several important housing-related
federal tax provisions. Had Congress not acted, the tax
code would have reverted to its pre-2007 treatment of mortgage principal reductions or cancellations by
lenders whereby principal balances written off would be treated as ordinary income to the homeowners who
received them.
Extended through December 31st, 2015, the Mortgage Debt Relief Act is something that some
taxpayers can qualify for, especially if you've undergone a hardship such as mortgage restructuring, short
sale or foreclosure. These situations include indebtedness on a qualified principal residence, bankruptcy,
insolvency, certain farm debts, and non-recourse loans. The program helps you to exclude income from the
discharge of debt so that the canceled amount is not reported as income for tax purposes.
A few key points to consider:
The Debt Relief Act applies to
debt forgiven from 2007 through December 31st, 2015.
·
Consult a finance or tax professional to
ensure you qualify.
-
The debt must have been used to buy, build or substantially improve your principal residence and be secured
by that residence. Refinanced debt proceeds used for the purpose of substantially improving your principal
residence also qualify for the exclusion. Proceeds of refinanced debt used for other purposes (ie. credit
card debt) do not qualify for the exclusion.
·
Up to $2 million in debt is eligible for
exclusion for married couples, or $1 million if married and filing separately. If the total liabilities exceed the total assets and the
forgiven debt doesn't qualify under this particular provision, it may qualify under the insolvency exclusion.
-
If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to
Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the
qualified debt was forgiven.
-
Debt forgiven on second homes, rental, business or personal property, credit cards, or car loans does not
qualify for the tax relief provision.
-
If your debt is reduced or eliminated, your lender will send you a year-end statement, Form 1099-C,
Cancellation of Debt, which also goes
directly to the IRS.
By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
·
Examine Form
1099-C closely. Pay particular attention
to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7. Notify your lender immediately if there are any
inaccuracies.
With an ever-changing landscape, count on Mountain West
Financial for solid experience and expertise.
Boomerang Buyers Reentering Housing Market
Many families who lost their homes to foreclosure in recent years are coming back to the game.
This large group of consumers, known as "boomerang buyers," can now obtain loans and are moving quickly to
reenter the housing market. On their second time around, these boomerang buyers are overcoming all emotional
hurdles.
Dawn Wotapka, a reporter for the Wall Street Journal, debunked the popular myth that families
that go through foreclosure never buy a house again. Rather, families that have had a home foreclosed on them
are often eager to reenter the market, with a better understanding about how mortgage works and what
responsibilities are required of them. "Definitely, you do not fall of a cliff when you lose your home to
foreclosure," Wotapka said.
The Waiting Period
Homeowners who've lost a home to foreclosure must usually wait for a while before they can
apply for that loan again. For a loan from the Federal Housing Administration (FHA), homeowners have to wait 3
years before they can reapply for a mortgage. Fannie Mae and Freddie Mac require a much longer waiting period
than the FHA- up to 7 years. Because the FHA has a shorter requirement, "it is the big game in town right now,"
says Wotapka.
Eager boomerang buyers are reaching out to homebuilders. Families who know the exact date of
their mortgage eligibility hire homebuilders to begin construction in anticipation of that date. Homebuilders
also view the burgeoning boomerang market as a source of many potential jobs. Nearly 730,000 families who lost a
home to foreclosure may soon be reentering the market.
You're Eligible, but Do You Qualify?
Since the housing crash, mortgage requirements have become more rigorous, requiring applicants
to provide exact sources of income, levels of debt, and credit history. The best opportunity is presented to
families who have a strong credit score. Fortunately, a foreclosure, bankruptcy, or short sale isn't a life
sentence and can be repaired with diligence and patience. Repairing your credit score after receiving the blow
from a foreclosure or short sale may take seven to ten years, but it is certainly achievable. Boomerang buyers
should understand that even though they may be eligible for another loan, they will have to pass the lender's
requirements, which in the past three years have steadily grown more stringent.
Although banks took huge losses from the thousands of families who went through foreclosure,
they are eager to get qualified individuals back into the housing market. "Housing is a big part of our economy,
and this is a large number of consumers who if we can get back, we want them back in the game. But the rules
this time around are very different. It's not the, 'you breathe, you get a mortgage' anymore," Wotapka said.
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