While the long-term housing outlook is beginning to look up, 2011 is projected to be the peak year for foreclosures during this market cycle. Distressed homeowners who are on the brink of a short sale, loan modification or foreclosure should be aware that normally, any mortgage balance on a primary residence that is wiped out by one of these outcomes is taxed as what the IRS calls Cancellation of Debt Income, or CODI.
Under the Mortgage Debt Forgiveness Relief Act of 2007, the IRS is currently not charging income taxes on CODI incurred through a loan modification, short sale or foreclosure on most primary residences through 2012. This is an important date to remember when making decisions about your property. Proper planning is necessary to avoid income taxes that will be returning to distressed properties on the horizon.
At Schern Richardson Finter Decker, PLC, we are anxious to discuss any questions about loan modification, short sales, and foreclosures with homeowners.