It has finally happened. Minneapolis residents have been waiting patiently since April to see if H.R. 3648, the “Mortgage Forgiveness Debt Relief Act of 2007 would pass and head to the Hill for a final vote. Just a few days ago, the miracle happened and homeowners now facing foreclosure will be saved (well, at least in this example)!
The Act provides a permanent exclusion for any discharge of indebtedness (on or after Jan. 1, 2007) that is secured by a principal residence and incurred in the “acquisition, construction or substantial improvement of the principal residence.” No longer will the bank issue a 1099 for the unpaid balance of a loan due to a short sale or foreclosure. And no longer will the IRS be able to view that “unpaid” amount as taxable income.
A couple months ago I had a homeowner call me wondering if he would be included if this passed. His home was foreclosed on in the Spring and he was going to owe alot of taxes on the unearned income reported on the 1099 issued by the bank. At the time, I didn’t have an answer for him. I wish had his phone number to call him and let him hear the good news. The Act will be in affect going back to January 1st of 2007.
