Facing difficulty paying your mortgage is likely to cause stress. For some homeowners who hold underwater mortgages, mortgage modification is one of the ways to keep a home. Orlando residents might be interested to learn that a 2007 federal law that waived taxes on unpaid mortgage debt is set to expire on Dec. 31, 2013.
If this federal law expires, homeowners who utilize mortgage modification or sell a home that has an underwater mortgage will likely face a high income tax bill. The same is true for homeowners who lose their home to foreclosure. With the high tax bill some homeowners will get, other bills might have to go unpaid.
Already extended twice, the Mortgage Forgiveness Debt Relief Act likely isn’t going to be extended again because mortgage defaults are no longer considered a problem for the economy as a whole.
It is estimated that approximately 130,000 mortgages in Metro Orlando are underwater. Homeowners who are forgiven any part of the difference between the mortgage balance and the actual worth of the home will have to pay taxes on that amount. As an example, a homeowner who has a $200,000 but sells the home for $100,000 could potentially face a tax bill of $28,000. For some, the tax bill come as an unwelcome surprise, because many homeowners aren’t aware of the law’s expiration.
If your home’s mortgage is underwater and you are behind on your mortgage payments, seeking the help of an experienced Orlando legal professional might help you make an informed decision about the best way to stop foreclosure.
Source: Orlando Sentinel, “‘Underwater’ homeowners likely to face new tax bill” Mary Shanklin, Dec. 17, 2013