The Mortgage Debt Relief Act, which was signed into law in 2007, provides a federal tax exemption to homeowners who receive debt forgiveness on their primary residence.
San Francisco, CA (PRWEB) January 10, 2013
While the fiscal cliff debates are still not over, one clause included in the stop gap measures that were passed to help avert the fiscal cliff is very good news for the continuing strength of distressed home sales. That clause is the one year extension of the Mortgage Debt Relief Act, which has provided relief to many homeowners affected by the mortgage crisis.
Cancelled debt is usually considered income by the IRS, however the Mortgage Debt Relief Act allows borrowers "to exclude certain cancelled debt on [a] principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief."
The Mortgage Debt Relief Act, which was signed into law in 2007, provides a federal tax exemption to homeowners who receive debt forgiveness on their primary residence. This means that those homeowners who have found themselves underwater on their mortgages can continue to sell their homes without having to pay federal taxes on the difference between the sale price and the mortgage amount. The same federal tax exemption applies when lenders forgive a portion of the mortgage principle.
Without this tax exemption in place, it is likely that some homeowners would opt for foreclosure on their homes rather than be burdened with a large tax bill.
“The extension of the Mortgage Debt Relief Act will continue to help those who are struggling with mortgage debt and will provide them the choice of a short sale without being further penalized,” said Terry Robinson, President of Genesis Capital. “It should continue to shrink the number of foreclosures in America and will also allow for the continuation of distressed home sales, without which we could easily see foreclosures back at 2008 and 2009 levels.”
The extended Mortgage Debt Relief Act will remain in effect until Jan. 1, 2014. The Act only applies to first homes.
Home sales across the country have been steadily increasing, while home inventories shrink. According to the National Association of Realtors, the supply of existing homes dropped to 4.8 months in November, while existing home sales increased to their highest levels in three years.
Distressed home sales have helped increase the number of existing home sales and with the extension of the Mortgage Debt Relief Act they will continue to do so.
About Genesis Capital
Genesis is a dynamic nationwide network of seasoned commercial real estate and financial professionals that believe in the potential of today’s market. Our members source assets directly from Banks, Servicers, Lenders and Private Clients. The members of Genesis have participated in commercial real estate transactions totaling nearly $7 billion.