Raeigh home owners facing foreclosure or short sale go through a tremendous amount of stress in the process of losing their home. Prior to December 2007, if a homeowner lost his home due to a bank forclosure or short sale, and the bank forgave any difference between the price it was sold for and what was owed, the Raleigh home seller would owe additional income tax on the portion that was forgiven. Yes, it is hard to believe that a Raleigh homeowner in distress could be taxed but, it’s true.
Let’s say the Raleigh homeowner owed $350,000 on the mortgage, but the foreclosure sale only brought in $300,000. The bank agreed to forgive the shortfall of $50,000 in the sale. The Raleigh homeowner would have been liable for the income tax on the $50,000 forgiven debt.
Now, because of the unbearable stress in the housing industry and economy, Raleigh real estate has a window of opportunity to sell distressed homes without being taxed. In December 2007, Congress stepped into provide temporary relief in the form of forgiving this debt from 2007- 2012. After that, the old rule applies again.
To be eligible for this Raleigh home tax relief, the mortgage must be for your principal residence. It does not apply to vacation, investment or other properties and no more than $2 million of forgiven debt can be excluded from taxable income.
If you are struggling making your Raleigh home payment consult a qualified accountant or REALTOR before considering foreclosure or short sale. Although the Mortgage Forgiveness Debt Relief Act will help many Raleigh homeowners there are situations where tax relief will not be granted. For example; equity lines used for Raleigh home purchase or improvements fall under this act. Equity lines used for vacation can still be taxed.
If you know of anyone falling behind in their mortgage payments as a Certified Distressed Property Expert (CDPE), I can help. Please call me at (919) 235-0007.
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