Until yesterday, debt that was forgiven in a foreclosure or as part of a loan workout was classed as income. For example, a homeowner who negotiated a short sale with her lender was required to recognize as income the amount of the loan that was forgiven.
That changed when President George W. Bush signed the Mortgage Forgiveness Debt Relief Act into law.
The measure will eliminate income taxes for many homeowners who must restructure their mortgages as they face foreclosure. The new law relieves a homeowner of the burden of paying additional income taxes if his lender has reduced the original loan amount to make it easier to continue making the mortgage payments. The law is a response to the rising waive of foreclosures and the re-setting of interest rates in 2008 on as many as 1.8 million mortgages.
About the author
- Joel D. Ruben
- Manhattan Beach, CA
- Joel Ruben is an experienced and creative real estate and business litigation attorney in the Los Angeles area. Joel's practice demonstrates the link between real estate litigation and transactions -- two sides of the same coin. In resolving business and real estate disputes, there is an opportunity more than 90% of the time to make a deal before trial in spite of the previous problems or ill will between the parties. In documenting real estate transactions, there is always an opportunity to apply lessons learned in litigation to fully express the intentions of the parties and reduce the risk of future disputes. You can learn more about Joel Ruben's law practice by visiting his website: www.joelruben.com.
