Maryland residents currently fighting their mortgage lenders over foreclosure and other mortgage issues could find themselves in a more dire financial position when January 1 rolls around.
The federal Mortgage Forgiveness Debt Relief Act is set to expire at the end of 2013 and legislators have not yet chosen to extend it as they did at the end of 2012. The law effectively prevents the Internal Revenue Service from counting forgiven mortgage debt as income against people who sell their homes for a loss.
For example, if a person owes his lender $200,000 but can only sell his home for $175,000, under the active law that $25,000 difference would be forgiven. If the law is not extended in 2014, this individual would have to cover the taxes on $25,000 of income on his federal taxes.
Extra income and therefore increased taxes can put already stressed homeowners in an incredibly difficult spot. Though a short sale may stop foreclosure from occurring, a seller may still find himself facing bankruptcy or other problems due to the tax implications of income from the sale. The status of this law may also force individuals who can still make their mortgage payments to evaluate if they should sell or hold on to their real estate properties.
While foreclosure and losing a home are always terrifying prospects for families across the country, the implications of the Mortgage Forgiveness Debt Relief Act lapsing could make those bad situations even worse. People who are fighting foreclosure or who are struggling with other mortgage issues may consider working with a College Park Maryland Nonprofit Bankruptcy Lawyer to get their financial affairs in order and evaluate their options for staying in or selling their homes.
Source: Union-bulletin.com, “Underwater homeowners could face extra tax burden in ’14,” Dec. 26, 2013