WHAT YOU NEED TO KNOW ABOUT FORGIVEN MORTGAGE DEBT IN 2014

 

 

 

The tax break for forgiven mortgage debt expired January 1, 2014. This means that you will be required to pay income taxes on any debt that’s forgiven you this year. For example, if the lender forgives you $50,000 in debt, and your income tax bracket is 25%, you would owe the IRS $12,500!

The “Insolvency” Exception

Here’s an interesting twist: there’s no tax on the forgiveness of debt if you are “insolvent” at the time of debt cancellation. Insolvent simply means that your total debts are greater than your total assets. In our example, assume your total assets are $20,000 and your total liabilities are $70,000. This means that your net worth would be negative $50,000. This would make you “insolvent” according to the IRS, and you wouldn’t have to pay any taxes at all on the $50,000 in forgiven mortgage debt! Keep in mind that when you calculate your assets, you need to include everything you own, including exempt assets beyond the reach of creditors under the law, such as interest in a pension plan and the value of your retirement account.

PLEASE NOTE: THIS LETTER AND OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 4681.

Scott Shenton
NMLS Number: 1039731
Apex Home Loans
Corporate NMLS Number: 2884
sshenton@apexhomeloans.com
https://www.apexhomeloans.com/scottshenton
(240) 268-3156
3204 Tower Oaks Blvd, Suite 400, 
Rockville, Maryland 20852

   

NMLS #2884 (www.nmlsconsumeraccess.org): Licensed as a Mortgage Lender and Broker by the Virginia State Corporation Commission, License #MC1278; Licensed in the District of Columbia as a Mortgage Lender and Broker by the DC DISB License # MLB2884; Licensed in Maryland as a Mortgage Lender and Broker by the DLLR, License #06-4989; Licensed in Delaware as a Mortgage Lender and Broker by the Office of the State Bank Commissioner, License # 011603.

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