WASHINGTON – Jan. 9, 2012 – You may owe federal income taxes in 2013 if you have a short sale, foreclosure after this year. Now is the time to make the hard decision: Are you going to walk away from your underwater home? Uncle Sam is still giving homeowners until Dec. 31, 2012, to go through a short sale or foreclosure without tax consequences – as long as the lender officially releases the debt. But on Jan. 1, 2013, the rules change: The amount a lender forgives, ether in a short sale or foreclosure, on a primary residence will be taxable on federal income taxes. So if a house sold $50,000 short of what is owed on the mortgage, then the selling homeowners will owe federal income taxes on that $50,000. Homeowners would owe $12,500 if they’re in the 25 percent bracket; $7,500 if in the 15 percent tax section. Homeowners would be on the hook even if the house sold but the bank had not formally forgiven the loan in a letter: The banks must officially sign off in writing before Dec. 31. Copyright © 2012 the Sun Sentinel (Fort Lauderdale, Fla.), Donna Gehrke-White. Distributed by McClatchy-Tribune News Service. “It’s a huge issue – it will be a shock to many taxpayers after 2012,” said Mark Steber, the Florida-based chief tax officer for Jackson Hewitt Tax Service. The law first came into affect five years ago as the housing market went bust nationwide. The Mortgage Debt Relief Act of 2007 “generally allows taxpayers to exclude income from the discharge of debt on their principal residence,” according to the Internal Revenue Service. “Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.” Up to $2 million of forgiven debt can be forgiven this year, $1 million if married and filing separately, according to the IRS. Copyright © 2012 the Sun Sentinel (Fort Lauderdale, Fla.), Donna Gehrke-White. Distributed by McClatchy-Tribune News Service.
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