Will the Debt Forgiveness Act of 2007 apply to me?
August 25, 2008
Date: 20 Feb 2008
I have five houses in Florida purchased in 2006 and two in Arizona that I also bought in 2006. I stopped making payments on all properties two months ago.
I have HELOCs (home equity lines of credit) on four of the houses that total about $200,000 more than they would short sell for.
- Will the Debt Forgiveness Act of 2007 apply to me? Am I going to get a bill from the IRS to tax the $200,000 in HELOCs over the short sale or foreclosure price?
- If I don't care about my credit, would you advise short sale or foreclosure?
- How many months after missing payments will they come and change the locks?
Date: 19 Mar 2008
- It's the "Mortgage Forgiveness Debt Relief Act of 2007". Since it appears none of these homes are your principal residence, it appears the Act doesn't apply to you. If the lenders cancel the excess debt, you will owe income taxes on the cancellation amount.
- I'm not a lawyer or a credit counselor. If you choose foreclosure, the lender has to do most of the work. Tax wise, the consequences are similar.
- The answer to this question depends on the real estate laws of the particular state. You might find that lenders are less patient than in the past, because they are trying to protect their own positions in a bad situation. Consult with real estate attorneys in the states where the properties are located.
We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.
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