Many credit the Mortgage Forgiveness Debt Relief Act for much of the housing industry’s recovery in Arizona and throughout the country. Under the IRS Tax Code, debt cancellation or debt forgiveness, such as mortgage forgiveness in a short sale, is considered regular “income” for the taxpayer. Under the code a taxpayer would essentially have to pay taxes on their regular income from their employment, then add in the total amount of debt forgiven, and then pay taxes on the entire sum.
During the housing crisis experienced in Arizona and the US, many homeowners would have be saddled with large income tax burdens in the wake of losing their homes. To protect homeowners from being kicked while they were down, the Mortgage Forgiveness Debt Relief Act. The Act was enacted to remove from a tax payer’s income, debt that was forgiven in the foreclose or short sale of their property provided it was money used to purchase or substantially improve the property. one of the most troubling aspects of the Fiscal Cliff is the expiration of the Mortgage Forgiveness Debt Relief Act set to expire on Dec. 31, 2012.
Unless a deal is reached, the forgiveness of that debt will again be counted as income and thereby become taxable against the homeowner. However, in Arizona that may not be as big of a factor as many Realtors have led homeowners and investors to believe because we are an anti-deficiency state.
To find out how the Mortgage Forgiveness Debt Relief Act, the Fiscal Cliff, and the Arizona anti-deficiency statute applies to you, call and schedule a FREE LEGAL consultation with an attorney at Wells Law Group — 480.428.3290.
