Did you know this?

I got a mass email from my congressman today and I thought he was full of shit about this subject.  Apparently, he's correct, and it's scary.

If you're losing your home as part of the mortgage crisis facing this country, that loss shouldn't be made worse by having the IRS tax you on income you never received.   In fact, an estimated 2 million American families could lose their homes to foreclosure due to rising interest rates.  Under current law, if your lender forgives a portion of what you owe on your mortgage, the IRS considers that to be income, and taxes you, even though you never actually received any money.  This week, the House of Representatives passed bipartisan legislation, with my full support, to make sure this doesn't happen.

Let me explain how current law works, then tell you what we've done to fix the problem.  Let's suppose to avoid foreclosure on your house, you sell to an investor for less than the amount you owe the lender, say by $20,000.  If the lender cancels the balance as part of your negotiations, the IRS requires you to pay income tax on that $20,000.  Essentially, the IRS is asking you to pay money you likely don't have on equity in your house you've lost.  It's "phantom income," but the IRS considers it to be canceled debt.

The Mortgage Forgiveness Debt Relief Act aims to correct this inequity by:

• Excluding canceled debt from taxation as income; and,

• Extending the tax deduction for mortgage insurance, which insures the homeowner against default on their mortgage, for seven years (through the end of 2014) thus making homeownership more affordable for low- to moderate-income homebuyers.

This legislation helps alleviate current law by expanding affordable mortgage loan opportunities and providing much-needed tax relief for homeowners facing foreclosure.  The last thing people under financial stress need are hefty tax bills.

Sincerely,

Brian Baird
Member of Congress

 

So if you've managed to get into trouble with your mortgage, and you do manage to find a buyer, you may be on the hook for a LOT of money.  If this is the case, PLEASE make sure your loan is covered.  To give you an idea, $20k worth of income could theoretically cost you around $7k in taxes.  Trust me, you don't need that kind of headache. :)

 

Travis

travis@rightwinglunatic.com