Going by the LPS’s preliminary report, 2,060,000 properties are in foreclosure inventory. According to CoreLogic, 11.1 million borrowers were said to be underwater as at the end of 2011 fourth quarter.
That is a good amount of potential debt to be forgiven. However, through the provision of Mortgage Debt Relief Act of 2007, homeowners are relieved from the burden of remitting taxes on their forgiven debt, whether this debt was forgiven through modification, foreclosure, or through a short sale. Unfortunately, this act will be expiring at the end of this year.
Lance Denha, Esq., from Law Offices of Lance Denha, asserts that this scheduled date of expiry for the mortgage debt relief act brings much uncertainty for a number of underwater homeowners who are on their way to a foreclosure.”
Individual borrower would realize thousands in savings if the expiry of this act is extended. For instance, depending on one’s tax bracket, for every $10,000 in forgiven debt could earn $1,500 to $3,500 in federal taxes. Similarly, when a mortgage debt of $100,000 is forgiven after a foreclosure, it could in turn incur $15,000 to $35,000 in taxes owed for the borrower.
However, notwithstanding the warning by the Law Office of Lance Denha that it will be a mistake to rush in handing over a deed before expiration date of December 31, the Congress could still end up extending the debt relief act.
According to Mark Luscombe, Obama included it in his budget to extend it up to 2014. In another statement, principal analyst for tax research firm CCH, said that the, “Congress… might decide it is not as critical as extending tax breaks that had already expired at the end of last year.”
Luscombe argues that this will not stop the congress from eventually acting to extend the relief. He goes ahead to say that, finding a way to pay is normally the only option about these things. The administration has proposed the extension of this act until January 1, 2015.
The condition for exclusion of forgiven debt from taxable income include the debt come from a primary residence, it must also be used for buying, building or for a substantial improvement of a primary residence. The other condition is that the debt must be an acquisition one of up to $2 million, or $1 million if the married taxpayers are filing separately.
The role of this multistate law firm, Law Office of Lance Denha, is to defend wrongful foreclosures against the homeowners.