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Homeowners May Have to Pay Income Tax on Portion of Mortgage Forgiven in Foreclosure
With all the talk of the fiscal cliff, there's a housing related tax cut that also needs Congress' attention.
A tax break that has saved struggling homeowners from paying thousands of dollars to the IRS is just days away from expiring. The mortgage forgiveness debt relief act was established in 2007 in the middle of the foreclosure crisis.
If Congress does not extend it by the end of the year, homeowners will have to start paying income taxes on the portion of their mortgage that is forgiven in a foreclosure, short sale or principal reduction.
For example, if someone owes 150-thousand dollars on their home and it sells for 100-thousand in a foreclosure auction, they could owe taxes on the remaining 50-thousand dollars.
So far, very little has been done to extend the act as Republicans and Democrats butt heads over the fiscal cliff.