SHORT SALE HOMEOWNERS IN MA AND NH – THERE COULD BE TAX FORGIVENESS WITHOUT Mortgage Debt Forgiveness Act

SHORT SALE HOMEOWNERS IN MA AND NH – THERE COULD BE TAX FORGIVENESS WITHOUT Mortgage Debt Forgiveness Act

I’m not an accountant nor do I play one on TV so please for tax advice seek out someone qualified.  I give the same advice to short sale sellers in Massachusetts and New Hampshire, which is find someone qualified to negotiate your sales – Oh wait, that’s me.  One of the big questions I’ve been asked since the beginning of 2014 is WILL THE MORTGAGE DEBT FORGIVENESS ACT BE EXTENDED?  My feeling is WHY wouldn’t it be?  However, the reality is, it hasn’t which means anyone selling a home short this year could face potential tax ramifications from the sale (PLEASE UNDERSTAND FOR THE PURPOSES OF THIS BLOG, I’M ONLY REFERRING TO THE FEDERAL LEVEL OF TAXATION – MASSACHUSETTS MAY HAVE THEIR OWN SEPARATE TAXES) – Now, if you are unfamiliar with why this is important, please see my earlier blog on this topic.

One of the provisions in the act which has yet to be extended is INSOLVENCY – which means if you are insolvent, you may not owe taxes on the forgiven debt, but what few know is there is still a tax code for homeowners who are deemed insolvent.  So even if the Act is not extended, you may still qualify for tax forgiveness if you are insolvent.

The code reads as follows:

Income from the discharge of indebtedness is includible in gross income unless it is excludable under Code Sec. 108 or other applicable legislative provision. Five types of exclusions are provided:

(1)

a debt discharge in a bankruptcy action under Title 11 of the U.S. Code in which the taxpayer is under the jurisdiction of the court and the discharge is either granted by or is under a plan approved by the court;

(2)

a discharge when the taxpayer is insolvent outside bankruptcy;

(3)

a discharge of qualified farm indebtedness;

(4)

a discharge of qualified real property business indebtedness, and

(5)

a discharge of qualified principal residence indebtedness occurring before January 1, 2014 ( Code Sec. 108). 80

This is good news for many homeowners who are still facing financial challenges and need to sell their home.  Again, I am not giving you tax advice, merely pointing out there may be a different provision for insolvent homeowners still needing a short sale.

Feel free to contact us today to discuss your short sale options.

 

 

 

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