Darin and Christina Cunningham | Re/Max Elite
278 Franklin Road Suite 190 | Brentwood, TN 37027
Office: 615.661.4400 | Fax: 615.661.4115
Christina: 615.394.4168 | Darin: 615.456.4086

Mortgage Forgiveness Debt Relief Act


Something very significant for homeowners will happen on December 31st this year.  Specifically, the Mortgage Forgiveness Debt Relief Act expires then.  Its expiration poses a great impact on many Nahsville home owners.  In fact, many, many home owners, even some who benefited from the Act already, don't even know it exists. 

What is the Mortgage Forgiveness Debt Relief Act?  It provides debt relief, or forgiveness on delinquent mortgage payments from 1/1/2007 -12/31/2012. It provides relief when a lender "forgives" the debt owed on the mortgage.  Forgiveness can happen with a short sale, foreclosure, or other type of loan augmentation.  In most cases, when a mortgage amount gets forgiven, it remains taxable.  With the Mortgage Forgiveness Debt Relief Act, the borrower's responsibility for the taxable amount also gets forgiven and eliminated.  In all cases with the Act, the mortgage debt must apply to a principal residence.  In addtion, the total debt amount must not be in excess of the original mortgage loan, plus any costs for home improvements. 

A good example of how the Act creates real monetary relief for the borrower would be in a short sale situation.  The seller, for example, must move out of his Nashville area home and on his mortgage loan, still owes $220,000.  He has a lender willing to handle short sale conditions.  While the sellers finds a buyer, and they agree on a sale price of $225,000.  The amount, however, falls short of what the seller needs to pay off the mortgage and the closing costs.  Luckily, though the seller falls short of the amount needed for closing, their lender agrees to the short sale and forgives the amount the seller cannot pay.  

Before the Act, the seller in our above scenario would be required to declare the many thousands of dollars forgiven as income, and pay the taxes on it.  For Individuals in a 20% tax bracket, that can amount to $2000.00+ in tax savings!  With the advantages of the Mortgage Forgiveness Debt Relief Act in mind, high-end home owners could be eligible for very significant tax savings.

Some may ask, "What is the maximum amount of debt relief under the Act?" Answer: up to $2 million can be forgiven for married couples, $1 million for single or filing separately. Anything forgiven above that amount gets taxed at regular tax rates. Again, in all cases, it must be for a principal residence. Remember, it does not apply to other debt with cars, boats, 2nd homes, credit cards, and so on.

It does not appear that the Act will be extended after 12/31/2012, or any other such advantage will be offered to homeowners next year.  Contact us to find out more about the Act and get in touch with a qualified professional approved to handle the Mortgage Forgiveness Debt Relief Act for your Nashville TN hombefore the Act expires.

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