Friday, February 7, 2014

Fallout from the Expiration of the Mortgage Debt Forgiveness Tax Exemption

The New York Times published an article called Welcome Relief for Homeowners, Until the Tax Bill Arrives that discusses the serious tax implications of big banks' mortgage debt forgiveness programs.  These programs are part of the big banks' strategy to settle with the Federal government for fines they incurred for their involvement in the sub-prime mortgage crisis.  These banks, such as JPMorgan Chase who was featured in this article, get credit under settlements with the Federal government for "writing off" mortgages.
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In our Firm's experience, mortgages which are "forgiven" in this manner are generally second mortgages which are already undersecured (underwater) any clearly not worth much from an investor's perspective.  Congress failed to extend the tax exemption that previously protected homeowners from having these "forgiven" mortgage taxed as income by the IRS.  The exemption lapsed on December 31, 2013.  This will create serious trouble for homeowners, as outlined by this article.  It's important for homeowners to be aware of these issues.

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