At the beginning of the year, homeowners involved in a short sale or deed in lieu transactions were given some potentially helpful tax relief. As part of the legislation to avert the so-called “Fiscal Cliff”, Congress included an extension of the provision that allows the exclusion from gross income the amount of any mortgage debt that is cancelled or forgiven.
During the economic downturn the income tax code was amended to exclude from gross income the amount of any debt that was cancelled or forgiven concerning a principal residence. The provision that allowed the exclusion of forgiven debt from the gross income calculation was set to expire on December 31, 2012. The extension for this exclusion now runs through December 31, 2013.
Commentators believe this may be the last extension for the exclusion of forgiven debt from gross income. This may have huge tax implications for homeowners that do not complete short sale or deed in lieu transactions this year. In the event such transactions are not completed this year, the amount of forgiven or cancelled debt as part of a short sale or deed in lieu transaction may again be deemed taxable income to the homeowner.
With the foregoing deadline approaching, keep in mind that receiving a bankruptcy discharge from the same mortgage debts is not treated the same way. Although the practical effect of receiving a bankruptcy discharge is the same – the homeowner no longer as a legal obligation to pay the discharged debt – the treatment is not the same as a voluntarily forgiven debt for which the homeowner may receive a 1099-C.
If you have question concerning this issue or any other issue regarding your rights concerning bankruptcy, just call (239) 362-2755. At Bankruptcy Bodyguard we offer a free initial consultation to discuss your options. Don’t wait until it’s too late.
