For Knoxville homeowners that have been through foreclosures or short sales over the past few years, the Mortgage Debt Forgiveness Act has been a saving grace. The Mortgage Forgiveness Debt Relief Act and Debt Cancellation was passed in 2007 to help distressed homeowners from paying income tax on their forgiven debt. Fortunately, as part of the “fiscal cliff vote,” the act has been extended through the end of the 2013.
The Mortgage Debt Forgiveness Act went into effect in 2007. Under the act, any borrower who sold their Knoxville home in a short sale, modified their loan, or went into foreclosure, is not required to pay taxes on that forgiven income. The rule applies to up to $1 million for those filing his/her taxes as an individual and up to $2 million for those filing their taxes jointly. Also, the act only applies to homes that are considered to be a primary residence, where the owner has live for the past three out of five years.
If the home is not a person’s primary residence, a borrower may still qualify to exclude the tax as claimed income. In order to due so, a borrower would have to show they are insolvent, which is when your total liabilities exceed your total assets. For more information about what the Mortgage Forgiveness Debt Relief Act covers and for more specifics of the act, visit the IRS website.
If you are a Knoxville homeowner facing foreclosure, it is important to know that you have options other than foreclosure. My team and I specialize in helping Knoxville homeowners avoid foreclosure, give us a call to today to set up a free consultation. You can give us a call at 865-696-9002 or send an email to [email protected]. Also, be sure to check out our Knoxville Foreclosure and Short Sale Resource Page.