Colorado residents who are struggling with mortgage debt and do not already know about the important tax break known as the Mortgage Forgiveness Debt Relief Act, should act fast if they want to take advantage of it. The debt relief program was passed in 2007 and allows the federal government to provide tax breaks to distressed homeowners who are lucky enough to work out a deal with their lender and reduce or eliminate their mortgage debt.
If the program is allowed to expire, because Congress cannot agree on much of anything anymore let alone extending this valuable and beneficial program, any homeowner who manages to get a break on their mortgage debt will have to pay taxes on it because that break will be considered taxable income. Too many Illinois residents are all too familiar with term 'underwater' when it comes to their homes market value compared to the amount they owe on their mortgage.
Distressed mortgage cases exist across the country, and currently what a lender considers a financial loss is actually a financial boon to the homeowner who either reduces their mortgage debt or eliminates it entirely through a short sale. If you sell your home for $250,000, but you owe $300,000 on your mortgage, that would be a $50,000 tax liability next year. That is if Congress chooses not to act on extending the program.
A spokesperson for BankRate.com advises homeowners with distressed mortgages to try and get their situation worked out as soon as possible. If you want to try and save your home and your lender is not responsive to your inquiries, consider contacting an attorney who specializes in debt relief and foreclosure prevention. There are a variety of options available to homeowners who either want to get out from their mortgage or save their home and get control of their finances.
Some homeowners have found that filing for Chapter 13 bankruptcy protection, which allows you to reorganize your debt into a repayment plan, extremely beneficial in not only providing debt relief, but a financial fresh start as well.
Source: KIMA TV, "Important tax break for some homeowners set to expire," Connie Thompson, April 30, 2012