600,000 Foreclosures a Year
Approximately 600,000 homes are foreclosed upon in the United States each year. In addition, there are tens of thousands of short sales taking place each and every year. It is also estimated, under the terms of the $25 billion foreclosure abuse settlement, approximately one million homeowners will have the principal amount of their mortgages reduced within the next few years. This means that there are virtually millions of Americans who will suffer increased income taxes related to losing their homes if the Mortgage Forgiveness Debt Relief Act of 2007 isn’t extended by Congress as part of some settlement concerning the fiscal cliff issues.
The Fiscal Cliff and the Real Estate Market
Most pundits point to a slow recovery in the residential housing market in the United States. However, fiscal cliff issues will have a negative impact on the housing market. The fiscal cliff and the housing crisis in the United States are major issues that must be considered by Congress and the President when resolving financial and tax issues.
Filing Bankruptcy
Let’s assume that the Mortgage Debt Forgiveness Act expires. Is there a way of avoiding income tax in the event of a short sale or foreclosure? The answer to this question is yes. If the individual files a Chapter 7 bankruptcy. If the debt is discharged in bankruptcy there will be no taxes due on the debt. Who can file for this type of bankruptcy? Individuals with debts that are greater than their assets or have negative cash flow.
