Floridians Helped by B of A Settlement Will Owe Tax on Debt Relief They Receive
Mortgage forgiveness tax relief expired December 31, 2013. Short sale deficiencies, principal reductions and loan forgiveness will subject the recipient to income taxes unless congress acts
Palm Coast, FL – August 24, 2014 – Floridians who were victims of Bank of America’s mortgage abuses during the Great Recession, may qualify for help. $1 billion of the recently reached $16.65 billion settlement agreement is earmarked for Florida. The non-cash funds are to be used for first and second lien principal reductions, loan forgiveness and other relief. Since January 31, loan forgiveness is now a taxable event.
When underwater homeowners sell their homes for less than the outstanding balance of their mortgage and if the lender waives a deficiency judgment), the resulting forgiveness of debt is recognized by the IRS as current income, even if no cash was received. The same is true if the principal amount of the loan is reduced.
It’s safe to say that anyone needing a principal reduction or who had to resort to a short sale, suffered from a cash or cash flow deficiency. Adding a large tax burden is counterproductive. Until December 31, 2013, congress had exempted most forgiveness amounts from taxation. That exemption expired at the end of 2013.
Congress needs to renew the exemption retroactive to the first of the year. Otherwise, homeowners will be faced with the dilemma of whether to continue to fight with their lender or to accept the debt forgiveness financed by the settlement agreement monies and fight the IRS over a tax bill they cannot afford.
Contact your congressional representatives and tell them to put their support behind a retroactive extension of the mortgage forgiveness legislation.
Oops..I thought they had already renewed it but hunted it down and apparently it’s attached to another bill loaded up with goodies and may not pass because of that. And…that they aren’t going to address it until after the Nov elections. Sad IMO. It’s all so stressful enough.