In 2007, the United States government passed the Mortgage Forgiveness Debt Relief Act, which was designed to give tax relief to people who had discharged debt on their primary residence during the tax year. This included mortgage restructuring, short sales and even foreclosures. Because of the act, taxpayers could write off this debt as an exemption instead of having it count towards their taxable income.
But according to an IRS article, the provision was supposed to run out in 2014, leaving many homeowners wondering how their own taxes would be affected if they decided to discharge debt on their property. Thankfully, President Obama has calmed these fears by signing an action that will extend the act through 2015. On top of this, the act will also be made retroactive for 2014 as well, giving some homeowners here in Brevard County the relief on their taxes they may need.
An article in the Palm Beach Post puts this exemption into perspective perfectly and shows residents in Florida how much they will save on their taxes thanks to the extension of the debt-relief act. As the article explains, if $200,000 of a homeowner's debt was forgiven in a sort sale, and that homeowner was in the 28 percent tax break, then, without the exemption, they would have owed the government $56,000. It's a huge chunk of change most of our Melbourne readers probably don't have just lying around.
Some realtors in the state, and perhaps across the nation, are concerned though that not everyone knows that the president extended the act, which could create problems if a professional tax preparer is not utilized when filing taxes. By writing this post, we hope this is a situation that does not befall our readers who had to undergo a short sale last year.