Eisrael Gomez Realtor - Monterey County Blog

Article from the California Association of Realtors Legal Department

President Bush signed into law yesterday a new measure giving tax breaks to homeowners who have mortgage debt forgiven. Under preexisting law, the debt forgiven by a lender, such as for short sales and refinances, was generally taxable to the borrower as debt discharge income. With the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer does not have to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence.

This tax break applies to debts discharged from January 1, 2007 to December 31, 2009. Qualified principal residence indebtedness is debt incurred in acquiring, constructing, or substantially improving the residence (up to $2 million for refinances).

For purposes of calculating capital gains, any debts discharged excluded from income under the new law must be subtracted from the basis of the taxpayer's principal residence (but not below zero). However, taxpayers may generally exclude from capital gains income up to $250,000 (or $500,000 for married couples filing jointly) for properties owned and used as their principal residence for at least two of the last five years.

For a copy of the Mortgage Forgiveness Debt Relief Act of 2007, go to http://www.govtrack.us/congress/bill.xpd?bill=h110-3648.

You should always consult a CPA or a tax attorney regarding tax issues and how they will effect you.  The above law and article may lead to more homes being sold as a short sale.  If you or someone you know has questions regarding wether a short sale is right for you. Please contact me.  My consultation is FREE. 

There are many persons charging for the service to negotiate a short sale for your bank. Let my CPA and attorney team work for you and let you know if a short sale is right for you!!  Consultation is FREE. 

Eisrael Gomez

(831) 809-8266