Posts Tagged: ‘Mortgage Forgiveness Debt Relief Act’

Exceptions to Paying Tax on Forgiven Debt

December 28, 2017 Posted by kingcade

If you recently had debt forgiven or negotiated down last year, you likely breathed a sigh of relief.  However, if you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount as income on your tax return, depending on the circumstances. Before you write a check to the IRS, see if you qualify for one of these exceptions to paying tax on forgiven debt.

  • Debts discharged in bankruptcy. If you filed for bankruptcy protection, you do not have to pay tax on the canceled debt.
  • Mortgage debt forgiven due to foreclosure. Originally set to expire after the 2012 tax year, the Mortgage Forgiveness Debt Relief Act protects you from having to pay tax on debt forgiven when you lose your home in foreclosure.  The deadline has been extended several times, most recently in December 2015 to include the calendar years 20017 through 2016.  And in early 2017, a bill to grant another exemption was introduced to Congress.
  • Debts canceled when you were insolvent. This is the most common exception, because debt is generally only cancelled when debtors are “insolvent” (i.e. – completely broke).  This exclusion only applies up to the amount by which you are insolvent.
  • Student loans forgiven after you have worked for a period of time. If your student loans contain a loan forgiveness provision based on service in your profession, do not include the canceled debt as income. In addition, certain federal student loans that were discharged by the U.S. Education Department’s “Defense to Repayment” or “Closed School” discharge process are exempt.  These apply to students at Corinthian Colleges and American Career Institutes Inc.
  • Forgiven interest that would have been deductible. For example, interest on a business debt.  You are not required to pay tax on the portion of the debt due to interest, if you could have deducted the interest if you had paid it.  However, if it was interest on a personal credit card- you must pay taxes on all the forgiven debt, including the interest.
  • Cancellation of debt as a gift. If the cancellation of debt is a gift, it is not income.  Generally, the IRS will believe you if you say the debt payoff was a gift between parties such as family members or friends.
  • Business and farm exceptions. You may not have to pay tax on canceled debt if it was in connection with your farm or if the debts were tied to business real estate and were forgiven when you owed more money than the property was worth.

If you have any questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.

Related Resources:

https://www.creditcards.com/credit-card-news/six-exceptions-paying-tax-forgiven-debt-1282.php

https://www.irs.gov/newsroom/home-foreclosure-and-debt-cancellation

South Florida Still in Need of Mortgage Debt Forgiveness

December 9, 2015 Posted by kingcade

South Florida was hit harder by the 2008 mortgage, housing, banking and economic crises than any other region in the U.S. and continues to lag behind the nation as a whole in the housing market recovery. We continue to hear stories of families who are struggling to piece their financial lives back together after this seven year ordeal. To make matters worse, without the re-authorization of the Mortgage Debt Relief Act, a number of South Florida homeowners will continue to be unjustly burdened.

The Mortgage Forgiveness Debt Relief Act eliminates the income tax on forgiven mortgage debt, eliminating a particularly punitive burden resulting from plummeting home values. In the aftermath of the housing crisis, many homeowners found that their homes were underwater- worth far less than their outstanding mortgage balance.

The most recent foreclosure statistics reveal that Florida’s foreclosure activity remains the nation’s second highest. Five Florida cities were among the 10 highest foreclosure rates for metro areas in the U.S. in the third quarter, including Jacksonville (No. 2), Deltona-Daytona Beach-Ormond Beach (No. 3) Tampa (No. 4), Miami (No. 5), Lakeland (No. 7) and Ocala (No. 8).

Without the re-authorization of the Mortgage Forgiveness Debt Relief Act, any forgiven principal reduction is currently taxable in 2015.  This means struggling homeowners, who have already faced job loss and sought loan modifications, will be left owing thousands of dollars in taxes this year on top of the loss of their home and its equity.

Banks and investment firms in the mortgage industry have received numerous breaks throughout the recovery. South Florida homeowners, who have been hit particularly hard by the crisis, have earned the right to this temporary tax break. We urge the Florida congressional delegation to pass the Mortgage Forgiveness Debt Relief Act.

Click here to read more on this story.

Choosing the right attorney can make the difference between whether or not you can keep your home. A well-qualified Miami foreclosure defense attorney will not only help you keep your home, but they will be able to negotiate a loan that has payments you can afford. Miami foreclosure defense attorney Timothy Kingcade has helped many facing foreclosure alleviate their stress by letting them stay in their homes for at least another year, allowing them to re-organize their lives. If you have any questions on the topic of foreclosure please feel free to contact me at (305) 285-9100. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.

 

Mortgage Forgiveness Debt Relief Act Set to Expire: Underwater Homeowners will likely Face New Tax Bill

December 19, 2013 Posted by kingcade

Beginning in January, homeowners with “underwater” mortgages will likely face a new tax bill if they sell their house, modify their mortgage or lose their home in foreclosure. The 2007 federal law that waived income taxes on unpaid mortgage debt is set to expire December 31, 2013.

Without the waiver, homeowners will be forced to pay income taxes on any mortgage amount forgiven by the lender, including foreclosure. Homeowners also will have to pay tax on mortgages that are unpaid because of a short sale or a loan modification, which lowers monthly payments. So this means that a typical homeowner who sells a house for $100,000 but still has a $200,000 mortgage could face a tax bill of $28,000.

Click here to read more on this story.

Choosing the right attorney can make the difference between whether or not you can keep your home. A well-qualified Miami foreclosure defense attorney will not only help you keep your home, but they will be able to negotiate a loan that has payments you can afford. Miami foreclosure defense attorney Timothy Kingcade has helped many facing foreclosure alleviate their stress by letting them stay in their homes for at least another year, allowing them to re-organize their lives. If you have any questions on the topic of foreclosure please feel free to contact me at (305) 285-9100. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.

Congress not likely to Renew Mortgage Forgiveness Debt Relief Act- Underwater Homeowners need to Act Fast

March 2, 2012 Posted by kingcade

In October of 2007, Congress passed the Mortgage Forgiveness Debt Relief Act to help underwater homeowners who were struggling to pay their mortgages. In most cases, any debt you have been relieved of by your creditors should be listed on your taxes as income, which means the taxpayer would owe on this amount. Due to the housing bubble burst and the resulting real estate crisis, this Act was passed to allow taxpayers to be forgiven of this amount.

This tax relief applies to debt forgiven in calendar years 2007 through 2012. The debt must have been used to buy, build or substantially improve the homeowner’s principal residence and must have been secured by that residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may also qualify for the relief.

It is important that underwater homeowners act fast to take advantage of this important tax break, as foreclosure and short sale proceedings can take up to a year to process.
Due to the $2.7 billion this has cost the government in only two years, many believe it is unlikely that this Act will be renewed at the end of its term in December of 2012.

To read more on this story visit: http://www.allgov.com/Top_Stories/ViewNews/Congress_May_End_Program_Allowing_Tax_Relief_for_Mortgage_Modifiers_120225

Choosing the right attorney can make the difference between whether or not you can keep your home. A well qualified attorney will not only help you keep your home, but they will be able to negotiate a loan that has payments you can afford. Foreclosure defense attorney, Timothy Kingcade has helped many facing foreclosure alleviate their stress by letting them stay in their homes for at least another year, allowing them to re-organize their lives. If you have any questions on the topic of foreclosure please feel free to contact me at (305) 285-9100. You can also find useful consumer information on the Kingcade & Garcia, P.A. website at www.miamibankruptcy.com.