If you went through a foreclosure or short sale since 2007, you know you received that 1099 form for that tax year telling you how much debt your bank “forgave.” This “cancelled debt” can be taxed as income. That is, before this debt relief act was enacted in 2007.
Last week, DS News reported that an Obama plan proposes to extend this tax waiver legislation.
Obama’s FY2013 budget proposal includes an extension of the Mortgage Forgiveness Debt Relief Act of 2007.
The Act ensures that homeowners who received principal reductions or other forms of debt forgiveness on their primary residences do not have to pay taxes on the amount forgiven.
We’ve written about short sale taxes in the past, and while you must always talk to a tax professional we offer you information on what to do with that 1099 when you receive it. Check out our article from earlier this year: Taxes on Contra Costa short sales
We’ll keep our ears open to see if it sounds like the State of California will follow suit, we hope so. We don’t think short sales and foreclosures will end by this year, so it seems prudent to extend these protections for homeowners in distress.