The Mortgage Cancellation Relief Act of 2007, S. 1394, introduced by Senators Debbie Stabenow, D-Michigan, and George Voinovich, R-Ohio, among others, would direct the IRS not to count loan forgiveness under a workout as taxable income. The House bill, H.R. 1986, was introduced by Reps. Robert Andrews, D-N.J., and Ron Lewis, R-Kentucky. Timing of consideration in either chamber isn’t set yet, NAR analysts say.

Well I have done many short sales in the last two years. What others need to know is that these are great people who have lost their jobs, typically. They may have left the area for employment out of Michigan. The market declined so their home which was formerly mortgaged at $300k is now listed at $250k and is being offered as a short sale.

That difference of $50k would often be included in their taxable income. So if their tax bracket is fifteen percent that means $7500 is owed to Uncle Sam. Remember, the trade off is, pay the IRS $7500 and get forgiven a debt of $50,000. It is a pretty good trade off if there are limited choices. The alternative for many is to let the house go into foreclosure.

We have some great information on short sales based on our Ann Arbor area market experience we can share. If you want to receive this via email, just request this from us info@KathyToth.com We also have a distressed web page set up here which is updated weekly.

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According to REALTOR.ORG, the introduction of companion bills in the House and Senate gives a big boost to securing tax relief for individuals who must pay tax on any portion of a loan that a lender forgives on a short sale or foreclosure.