A Tax Break for Struggling Homeowners Close to its End

A tax break for struggling homeowners is close to its end.  The clock is now ticking on the Mortgage Forgiveness Debt Relief Act of 2007, and if it’s not extended by the end of the year, many homeowners will once again start paying income taxes on part of their mortgage.

Homeowners who got the tax break could end up paying high taxes.  If you owe $160,000 on your home and it sells for $90,000 at auction because of foreclosure, you will have to pay tax on the remaining $70,000.  If you happen to be in the 25% tax bracket, you will end up paying over $13,000 in taxes. Taxes like this will also apply to short sales and principal reductions.  This news has many homeowners, who are trying to short sale, very worried.   

If the tax break expires, thousands of mortgage borrowers could be affected.  Millions of borrowers took advantage of the tax break when they had their mortgage debt lowered and through short sales. 

The only good news if the exemption expires is that not all borrowers will take a tax hit.  If your debt was discharged due to bankruptcy, you will not have to pay tax on the mortgage. And, if you have more debt than assets, you will most likely not have to pay either. 

This tax exemption information is brought to you by: Tom Kile – your real estate resource for Amarillo, TX and surrounding communities.

Originally posted at:  http://activerain.com/blogsview/3514979/a-tax-break-for-struggling-homeowners-close-to-its-end