Us Homeowners In Negative Equity May Be Eligible For Tax Breaks
News Posted On: 13 April 2012
It’s estimated around 11 million people in the US now have mortgages which exceed their homes value, but some of those in negative equity may be eligible for tax breaks. Those who have negotiated debt reduction with their lenders are generally liable for tax.
This is because the cancellation of debt is normally taxable, and the only way to avoid paying these taxes is to become bankrupt or to claim insolvency which is when debts outweigh assets. Some states, for example California, have a non-recourse rule which not only forbids lenders for coming after homeowners for extra cash after foreclosure, but also gives exemption from paying tax.
In 2007 a federal tax break was put in place allowing homeowners to exclude up to $2 million worth of forgiven mortgage tax from their income, provided the debt was on their primary home, but this tax break expires at the end of the year and no one knows if it will be renewed. Experts are advising anyone who may fall into this category to act quickly, as dealing with property which is in negative equity can take time. There are some exemptions for this tax break, as anyone who took equity out to spend on holidays, cars or other items which aren't related to the home is still liable to pay tax on this amount, and not all states abide by this federal tax break.
The problem of debt is something which could be pursuing Americans for many years, as initiating short sales or undergoing foreclosure doesn't necessarily mean the end of the debt. Those living in states where the bank still has recourse to go after the loan can be pursued for years unless the owner has reached an agreement with the lender before signing a deal.
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Written by Les Calvert
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