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Mortgage debt relief act set to expire

Although there are signs of improvement in the housing market in Tennessee and the rest of the country, it is still a very fragile recovery. Now, a tax break that has helped many floundering homeowners in a very difficult market is scheduled to expire at the end of 2012.

The Mortgage Forgiveness Debt Relief Act of 2007 was enacted to help homeowners who are going into foreclosure or a short sale of their property. It essentially allows homeowners to avoid paying taxes on whatever portion of their mortgage is forgiven as a result of a foreclosure or a short sale. This change could potentially affect millions of homeowners, as around half a million short sales are processed each year and every month approximately 50,000 homes are the subject of foreclosure proceedings.

they will need to pay taxes on the $50,000 that is being forgiven by the bank. This can be a very significant amount of money. If an individual is in the 25 percent income tax bracket, they would have to fork over $12,500.00 in taxes. However, those individuals who discharge their debt in bankruptcy proceedings would not be affected by the expiration of this law. Also, if someone has more debt than assets they would not have to pay this tax.

If an individual is facing grave financial troubles, it can be worthwhile to consider filing for bankruptcy. Bankruptcy is a valuable tool for individuals to use when a debt burden gets out of control.

Source: money.cnn.com, "Clock ticking on mortgage tax break for struggling homeowners" Les Christie, Dec. 24, 2012

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Kenneth C. Rannick, P.C.
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