There is hope after all! The Senate Finance Committee recently passed a retroactive extension of the tax relief for homeowners who had a mortgage forgiven by their lender as part of a short sale, foreclosure or loan modification.
The relief expired December 31, 2013, and unless the House and full Senate approve the extension, homeowners will face a problem when they file their tax returns next year, they will pay tax on the “Phantom Income,” or cancelation of debt income, which is the amount of debt forgiven in the sale or modification. Without the Mortgage Forgiveness Debt Relief Act (MFDRA), forgiven debt is characterized as income to the borrower in the tax year it is forgiven.
Arizona homeowners are in a unique position because Arizona is a non-recourse state. As a result, the MFDRA affects them differently than homeowners in other states. To learn more about the fine print of the Mortgage Forgiveness Debt Relief Act and how it affects Arizona homeowners, contact one of the most experienced real estate teams in Phoenix, Wells Realty & Law Groups. Not only can they give you information and advice about the MFDRA, they can also inform you of other legal ramifications that go hand-in-hand with selling your home via short sale on the real estate market in Phoenix or allowing the property to go through foreclosure.