Mortgage Forgiveness Debt Relief Act of 2007

On December 20, 2007, a new bill amending the IRS tax code (HR 3648) was signed into law. This new law is known as the Mortgage Forgiveness Debt Relief Act of 2007 and it was enacted to help distressed homeowners who must either sell their homes or face foreclosure. The new law reverses the longstanding IRS position that debt forgiven by a lender during a pre-foreclosure sale would be classified as imputed (i.e. taxable) income to the homeowner. Removing this tax consequence should allow more distressed homeowners to sell their properties prior to foreclosure and increase our chances of capturing this business. The following are some highlights of the new law:

1. It is a retroactive and temporary change to the tax code, mortgage debt forgiven by a lender between January 1, 2007 and December 31, 2009 will not be deemed taxable income to the homeowner. (must still report it to the IRS)
2. It does not apply to investors; it only applies to taxpayers' principal rsidences that they have occupied for two or more years.
3. The mortgage debt forgiven will only be the "acquisition indebtedness", the sum total borrowed for the acquisition of the property. Refinances of this debt would also qualify, but only up to the total amount borrowed to purchase, and in some cases to substantially improve, the property.
4. A maximum of two million dollars of mortgage debt may be forgiven.

Since every case is different, please check with your attorney and CPA to see if you qualify.

Amit Bhuta
Real Estate Helper
Kendall Village Homes
(305) 439-3031
www.DadeCountyMLS.com