Loan Forgiveness Income Gets Forgiven For 2015 And 2016
Roy Oppenheim
Partner at Oppenheim Law, Weston Title & Escrow and founder of the South Florida Law Blog.
As you may know, Congress very quietly, has given many of our clients and friends an unbelievable start of the 2016 New Year.
Starting in 2008, the government, through the Mortgage Forgiveness Debt Relief Act, began granting people who were doing short sales or loan modifications on their homes forgiveness which allowed them to exclude income from the discharge of their remaining debt on their principal residence from their income taxes. Historically, you would be issued a 1099 for the deficiency and the IRS would have expected you to pay taxes on the loan forgiveness income.
Thankfully, this has not occurred since 2008 due to the consistent renewal of the Mortgage Forgiveness Debt Relief Act. From 2008 through 2014, the Mortgage Forgiveness Debt Relief Act has been renewed three times, with the fourth renewal expected in January of 2015. It never came. This made people considering short sales or loan modifications in 2015 very nervous about the potential tax bill they could be facing at the end of the year.
Well, the 2016 good news is that with the passing of the omnibus appropriations bill, loan forgiveness income will continue to be exempt from income taxes for 2015.But that’s not all, for the first time in years, Congress also prospectively, as opposed to retroactively, extended the exemption of loan forgiveness income through 2016.
But that’s not all, for the first time in years, Congress also prospectively, as opposed to retroactively, extended the exemption of loan forgiveness income through 2016.
This can be a confusing and complex concept. If you have any questions please do not hesitate to call our office, but even more importantly, all the best to you and your family in 2016.
Roy Oppenheim,
In the Trenches
Partner at Oppenheim Law, Weston Title & Escrow and founder of the South Florida Law Blog.
8yThanks, Rossana Narvaez
Great explanation right here. This really was a very fun surprise. A complete absurdity, how the tax extender package for 2014 got signed into law last year on December 27, and then expired on December 31, 2014 . Plus they packaged up the bill that included the debt forgiveness with a bunch of wildly controversial Affordable Health Care tax credits. Many people who would've liked to have liquidated In 2015 did not, because of this unknown variable lurking out there. People are willing to proceed, when you explain that they will have a tax liability, with 100% certainty, barring a CPA workaround. You show people the worst-case scenario at a 20, 25, or 30% tax bracket. They know it's coming, and they can live with it. But there's just something about not knowing the tax consequences for sure, that kept a lot of people on the fence this last year. And the more money the borrower has, the more the taxes become a concern. Anish Dave, see above! Even Roy said the debt forgiveness is good through the end of 2016, and he knows everything about everything. 😂 2017 was not included.