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Tax Help for Underwater Homeowners
By Gail Buckner, FOXBusiness
If you’re one of many homeowners who paid top dollar for your home and are still waiting for the price to recover, don’t forget about an important tax break.
Mortgage debt that a lender forgives – say, by restructuring your loan or through foreclosure – is not taxable as “income” on your federal tax return. While you still have to report it, this is a huge savings and it’s (still) here for only a limited time.
Say you bought a home back in 2006 for $400,000 and you put down $60,000 and took out a mortgage for $340,000. Now the home is worth around $330,000 and you are no longer able to make the monthly payments because your spouse has been unemployed for three years. To avoid the expense and delay of foreclosure, you and your lender agree to a “short sale” where you sell your home for less than the outstanding debt attached to it.
While a short sale releases you from your mortgage, whether your lender can still try to collect the balance depends upon where you live.
Read more at Tax Help for Underwater Homeowners.
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