What You Need to Know About the Cancellation of Mortage Debt- Columbia SC Real Estate

What You Need to Know About the Cancellation of Mortage Debt- Columbia SC Real Estate

A lender will, on occasion, forgive some portion of a borrower’s debt. The general tax rule that applies to any debt forgiveness is that the amount forgiven is treated as taxable income to the borrower. Some exceptions to this rule are available, but, until recently, the borrower was required to pay tax on the debt forgiven. A new law enacted in December 2007 provides relief to troubled borrowers when some portion of mortgage debt is forgiven. However, this relief expires on December 31, 2012 and NAR will be working to obtain an extension throughout the year.

Below is some general information you need to know about this law and cancellation of mortgage debt.

General Rule for Debt Forgiveness

If a lender forgives some or all of an individual’s debts, the general rule is that the forgiven amount is treated as ordinary income and the borrower must pay tax on the forgiven amount. Exceptions apply for bankruptcy, insolvency and certain other situations, including mortgage debt.

Current Law for Mortgage Debt

(Jan. 1, 2007 through Dec. 31, 2012): A borrower can be excused from paying tax on forgiven mortgage debt. The debt must be secured by a principal residence and the total amount of the outstanding obligation may not exceed the original mortgage amount plus the cost of any improvements.

Does the relief apply only to a sale?

No. The provision has broader application. Lenders might forgive some portion of mortgage debt in a short sale (when value at sale is less than the amount owed) or in a foreclosure where the debt is wiped out. In addition, if a borrower still living in the home is able to make an arrangement with a lender that reduces the principal balance of a mortgage, the amount forgiven in that workout will not be taxed.

Can the homeowners in a short sale or foreclosure claim a loss?

No. The loss is considered a personal loss and is, therefore, ineligible for either capital loss or ordinary loss treatment.

What happens to the seller when mortgage debt is forgiven?

Until January 1, 2013, the homeowner will pay no tax on any forgiven amount.

Does this provision apply to a refinanced mortgage?

Only in limited circumstances. The relief provision can apply to either an original or a refinanced mortgage. If the mortgage has been refinanced at any time, the relief is available only up to the amount of the original debt (plus the cost of any improvements). Tax relief is generally not available for second mortgages or home-equity lines of credit where the funds are not used for home improvement. Any amount that is not eligible for the relief provision will be taxed as ordinary income.

How does the homeowner get the correct information to the IRS?

The lender is required to provide the homeowner and the IRS with a Form 1099 reflecting the amount of the forgiven debt. The borrower/homeowner must file a Form 982 to reflect the amount forgiven and to show the reason why the forgiven amount is not taxable. Any taxable portion of forgiven debt will then be reported on the homeowner’s Form 1040 for the tax year in which the debt was forgiven.

What if a property declines in value, but is not sold?

The provision would not apply. The provision applies only at the time of sale or other disposition or when there is a workout with the lender.

Do all lenders forgive mortgage debt when property values decline?

No. In states with applicable laws, the lender may require a repayment arrangement, particularly if the borrower has other assets.

Contact us at our Exit Real Estate Solutions website to learn more about debt relief!

Search for Homes Today!

 Search Homes for Sale in Columbia, SC

Blog Signature: Mortage Cancellation, Debt Relief Act, Debt Forgiveness, Mortage Debt, Mortage Debt Relief, Columbia SC Real Estate, Irmo SC Real Estate, Columbia Homes for Sale, Irmo Homes for Sale, Short Sale, Refinanced Mortage

ExitRES Blog: What You Need to Know About the Cancellation of Mortage Debt- Columbia SC Real Estate
Trulia Blog: What You Need to Know About the Cancellation of Mortage Debt- Columbia SC Real Estate
Activerain Blog:What You Need to Know About the Cancellation of Mortage Debt- Columbia SC Real Estate
Realtown Blog: What You Need to Know About the Cancellation of Mortage Debt- Columbia SC Real Estate
WordPress Blog: What You Need to Know About the Cancellation of Mortage Debt- Columbia SC Real Estate
Exitmidsouth Blog: What You Need to Know About the Cancellation of Mortage Debt- Columbia SC Real Estate
ExitCarolinas Blog: What You Need to Know About the Cancellation of Mortage Debt- Columbia SC Real Estate
Jaekimhomes Blog: What You Need to Know About the Cancellation of Mortage Debt- Columbia SC Real Estate
Agreatertown Blog: What You Need to Know About the Cancellation of Mortage Debt- Columbia SC Real Estate
Homegain Blog: What You Need to Know About the Cancellation of Mortage Debt- Columbia SC Real Estate

Source:http/www.realtor.org/subprime_lending.nsf/pages/mort_cancellation_qna?opendocument
Columbia,SC EXIT Real Estate Solutions – Jae Kim, Broker
Buying or selling a home or property should be one of the most enjoyable experiences of your life.  Most of the time, it’s the largest investment you will make.  Jae Kim of EXIT Real Estate Solutions in Columbia, SC is your Award Winning Real Estate expert in BlythewoodColumbiaLugoffElginLexingtonIrmo,ChapinCamden,
CayceWest Columbia, and the rest of Greater Columbia.  This is what we do every day. We can simplify the process for you so that you can enjoy the the experience and avoid the pitfalls that often result in stressful transactions.  Call 803-348-3052 today for World-Class, Award- Winning representation.

Advertisements

About Jae Kim, Broker/Owner - EXIT Real Estate Solutions

Jae Kim is a an expert Realtor®/Broker in the Greater Columbia Area including the cities of Blythewood, Columbia, Lugoff, Elgin, Lexington, Irmo, Chapin, West Columbia and more. Jae has in depth knowledge and experience in many large neighborhoods including Lake Carolina, LongCreek Plantation, Crickentree, Wildewood, Woodcreek Farms, Governors Grant, Ascot, Ashford, Chestnut Hill Plantation, and Saluda River Gardens. He can help you find anything you are searching for, including homes, houses, condominiums, lots, land, townhomes, foreclosures, short sales and real estate listings for sale. He also has extensive experience in relocations, military transfers, & investments. Jae Kim is a Georgia Tech graduate in Mechanical Engineering. He worked for 12 years in distribution and manufacturing management with companies like Amazon.com, Target, Mobil Chemical , WR Grace , and QVC. Jae has extensive experience in the real estate industry from past purchases and sales (renovations, foreclosures, short sales, duplexes, quads, apartments, commercial property, resort land, etc...). He leverages his experiences to help his clients and their needs. Jae began his real estate career with Coldwell Banker in Camden,SC. He had his first full year in 2005 (see below). Jae moved to RE/MAX in 2007 and started his team. In 2008, Jae became a broker and his team maintained an average of 40 listings with an average price of $200,000. In 2009, Jae received the prestigious CRS designation, placing him in the top 4% of all real estate sales agents nationwide. In May 2009, EXIT Real Estate Solutions, opened its doors to the public with Jae Kim as the Owner/Broker-in-Charge. Jae has exceeded $40,000,000 in transactions and continues to remain in the top 1% of agents in the Greater Columbia area. Jae was the 2010 Top EXIT Realtor® in Greater Columbia and #3 in the entire state. Jae has just recently opened his second office in Irmo, SC and is excited to continue with this success and grow! Recently, Jae Kim was recognized by The State Newspaper for his sustained success in real estate despite the hard market conditions. Previous clients have been overwhelmed with joy after working with him. Many are shocked how quickly he is able to sell their property, and others are thrilled about how easy and stress-free he makes the process of buying or selling a home. They have appreciated his broad knowledge base along with the endless tips and advice he is able to provide. Additionally, they assert that Jae’s hard work, commitment, and professionalism make him THE Realtor® to work with! In his free time, Jae enjoys spending
This entry was posted in Uncategorized and tagged , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s