El Paso residents who are still struggling with a resolution to get out from under mortgage debt they cannot pay may still have a chance for debt forgiveness on a portion of their outstanding balance.
While we hear a lot about the economic recovery, there are many homeowners who are still struggling financially and are underwater in their home mortgages. Being behind in mortgage payments leaves homeowners with several options: loan modification where a portion of their debt is written off or the late balance tacked to the end of the loan, a short sale where the house is usually sold for less than it is worth or a deed in lieu of foreclosure. The problem is that when debt is written off by a lender, either through a short sale, loan modification or deed in lieu of foreclosure, the amount written off is treated as taxable income by the Internal Revenue Service.
The Mortgage Forgiveness Debt Relief Act, which was imposed by Congress during the economic downturn, allowed the IRS to exempt taxing the amounts forgiven; however, this Act expired at the end of 2014. It is no longer available to those still struggling and hoping for a debt forgiveness from their mortgage holder in 2015.
The good news is that there are a couple of senators who are fighting to have a bipartisan bill passed that will extend the Debt Relief Act until the end of 2016. Senator Dean Heller of Nevada and Debbie Stabenow, senator of Michigan, are both representatives of areas that have been hard hit in the real estate market over the last few years. Negative equity in homes is still a problem across the entire country. If this bill passes, it will be a relief to many individuals who are still struggling and financially distressed.
Source: Los Angeles Times, “Mortgage debt forgiveness still a taxing issue for many short sellers” Kenneth R. Harney, Mar. 15, 2015