Sunnyvale Real Estate Blog

Mortgage Forgiveness Debt Relief Act of 2007

President Bush recently signed into law a new measure giving tax breaks to homeowners who have mortgage debt forgiven. Under preexisting law, the debt forgiven by a lender, such as for short sales and refinances, was generally taxable to the borrower as debt discharge income. With the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer does not have to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence.

This tax break applies to debts discharged from January 1, 2007 to December 31, 2009. Qualified principal residence indebtedness is debt incurred in acquiring, constructing, or substantially improving the residence (up to $2 million for refinances).

For purposes of calculating capital gains, any debts discharged excluded from income under the new law must be subtracted from the basis of the taxpayer’s principal residence (but not below zero). However, taxpayers may generally exclude from capital gains income up to $250,000 (or $500,000 for married couples filing jointly) for properties owned and used as their principal residence for at least two of the last five years.

Click here for the full copy of the Mortgage Forgiveness Debt Relief Act of 2007 .

The preceding is for informational purposes, and is not to be considered tax advice. The SV Home Team, specializing in real estate sales in Santa Clara County, and specifically in Sunnyvale, California, is simply trying to disseminate information we hear that might be beneficial for the public at large. We are not accountants, and we always advise verifying this and any information which can have tax ramifications with your tax advisor.

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Hey Gary! Hey Robert! Can you help me do a short sale?

Can you help me do a short sale in Sunnyvale? You bet we can; in fact, we’ve been certified as experts! A short sale occurs when the sale price of home will be insufficient to pay off the loans on the property (this is also known as being “upside down”). In a short sale, we negotiate with the lender, on the seller’s behalf, asking them to accept less than the full amount owed to them.

Why would a lender consider it? To save time and money.

Let’s say the seller has lost his job, and can no longer make the payments on his loan, or his adjustable rate loan has adjusted upward and he can’t afford the higher payment. For instance, we’ll ask the lender to accept $50,000 less than the amount owed in order to allow a sale to go through. If the alternative is for the lender to foreclose, and we can show them it will likely cost $100,000 or more to do it, many times they’ll consider it, and we can prevent a “foreclosure” from being stamped on the seller’s credit report. If you know of anyone who might need our help on this, please have them give us a call or send an email!

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