January 31, 2013 /24-7PressRelease/ -- In the final hours of 2012, the U.S. Congress passed a bill extending the Mortgage Forgiveness Debt Relief Act of 2007. The Act was due to expire at midnight on December 31, 2012. Currently, the Act, also known as the "Debt Forgiveness Act," is now due to expire on January 1, 2014.
If the extension had not been enacted, many struggling homeowners within Minnesota and across the nation would no longer be entitled to substantial tax relief provided by the Act.
Debt Forgiveness Act provides tax relief
Under the provisions of the Act, homeowners who receive forgiveness of portions of their mortgage debts from their banks do not have to pay taxes on the amounts forgiven. For example, if a homeowner owed $200,000 on his or her primary residence and lost the home in a foreclosure proceeding when its value was only $175,000, the bank may have forgiven the outstanding amount owed, the $25,000 difference.
Normally, the homeowner pays taxes on the amount forgiven by the mortgage lender since the portion forgiven is seen as "taxable income" by the Internal Revenue Service (IRS). If the balance forgiven is substantial, the homeowner jumps into the next tax bracket and pays at a higher tax rate. Fortunately, the Debt Forgiveness Act makes the forgiven portion of the mortgage -- $25,000 in this example -- non-taxable.
The Act applies to mortgage debt on a primary residence waived or forgiven through:
- Short sale
- Loan modification
Of course, rules and restrictions apply and homeowners must comply with the proper procedures in order to take advantage of the tax savings offered by the Debt Forgiveness Act.
Minnesotans continue to struggle
Although foreclosure numbers are slowly declining across various counties in Minnesota, thousands of homeowners continue struggling to keep their heads above water. Despite the slight rebound in home values in the state, it may be too little too late for many Minnesotans.
Help is available
You are not alone if you are having difficulty paying your bills. Whether your situation is due to a job loss, illness or simply from overspending, help is available. Solutions are available if you struggle with a high debt load from such sources as:
- Mortgage loans
- Credit cards
- Auto loans
- Student debts
- Medical bills
- Debts from a divorce or other life-changing event
Filing for bankruptcy is an excellent option for those looking to hit the restart button on their financial future and may allow you to keep your home. A Chapter 7 bankruptcy can wipe the slate clean of most, if not all, of your unsecure debts. A Chapter 13 bankruptcy allows you to restructure your debt load, consolidating payments into a manageable amount each month.
If you have questions regarding your options, consult with an experienced bankruptcy attorney. Financial freedom may be possible and 2014 may be the year you attain it.