I’ve written a lot about foreclosures, short sales and other problems connected with the housing crisis and people losing their homes. But I didn’t realize until recently that a homeowner can end up owing the feds taxes on debts that are forgiven.
I came across a warning about that while researching some stuff around the issue of deed-in-lieu-of-foreclosure, where homeowners basically agree to throw the keys to the lender in exchange for the lender forgiving the remaining mortgage debt on the home.
But just because the debt is off you doesn’t necessarily mean you’re off the hook.
I admit I have a lot more questions than answers at this point. Let’s try to pool our experiences and smarts and learn more together.
If you’ve had experience dealing with the tax issues around homes and debt forgiveness, please post below or contact me directly.
I haven’t seen a ton written on this issue and would like to get homeowners tax people and others with first-person insights to share their perspective.
Tell us what you know and I’ll write about it in a future post.
Here’s what I do know: With housing prices falling and the economy sliding toward recession, Congress passed the Mortgage Debt Relief Act of 2007, which generally excludes the mortgage debt you’ve walked away from as taxable income in a restructuring, short sale or similar situation.
But there are limits. It’s only good on your principal residence, not on the debt for a vacation home. You can only use it for debt forgiven between 2007 and 2012. And you still have to report the forgiveness to the IRS.
I haven’t found any reporting or analysis on how this is working or who’s using it. But I’m interested.
Here are some other key sites where I’ve found information.
Any thoughts? Let me know.