Extending this provision is the first step in the right direction, no doubt about that.
Orange, CA (PRWEB) January 04, 2013
White House Press Secretary Jay Carney released a statement on January 3rd confirming that President Obama had signed the "American Taxpayer Relief Act of 2012" into law, effective January 2nd, 2013.
Also known as House Resolution 8 (H.R. 8), it's passage by Congress was to ensure that the United States did not go over the popularly phrased "fiscal cliff". At the 11th hour, Congress squeezed the bill through in at attempt to address many tax deductions that were due to expire on January 1st, 2013.
Buried in the list of extensions was Sec 202, which is titled "Extension of Exclusion from Gross Income of Discharge of Qualified Principal Residence Indebtedness."
This provision extends the Mortgage Debt Forgiveness Act of 2007, which protects distressed homeowners from incurring a higher income tax bill after a short sale, deed in lieu arrangement, or foreclosure.
Under Section 202, when the mortgage owed exceeds the value of the home, that obligation is subsequently forgiven.
Scott Schang, a California Real Estate Broker and Branch Manager for Broadview Mortgage, stated his opinion on Section 202. “Victims of foreclosure, many of which fell prey to predatory lending practices, should not be forced into bankruptcy. That just adds injury to insult. If we're serious about seeing a recovery in the housing market, the economy in general, we need to address the giant elephant in the room. Right now that elephant is wearing a 'Foreclosure for Sale' sign."
The bank's losses are normally reportable as income because the homeowner no longer has an obligation to repay the bank. The bank is usually required to report the amount of the canceled debt to the homeowner and the IRS on a Form 1099-C, Cancellation of Debt.
For most homeowners this is delivered in the form of a devastating income tax bill, and may also result in a higher tax bracket due to the misleading “jump” in income.
"Extending this provision is the first step in the right direction, no doubt about that. The critical next step would be to create awareness and educate the public." says Schang, who runs "FindMyWayHome.com", a consumer education website for real estate. " Families facing immanent default on their primary home have dodged a serious bullet here and must weigh this timeline when making a decision about possible options."