Forgiven mortgage debt not taxable
Q:
I had to sell my home earlier this year for less than what I owed on my mortgage. It was a long process, but my lender finally agreed to forgive the extra amount I owed – about $50,000 – and approved the sale.
Now I’m wondering if I will have to pay tax on that forgiven amount. A friend of mine told me I would have to pay tax on that amount. Is that true? I don’t see how I can afford to do that. I actually thought the loss, because it is a loss for me, would be tax deductible.
A:
Your friend used to be correct. In the past, if a lender wiped away debt, generally speaking, that forgiven debt was considered taxable income. I say, “was considered” because the housing crisis has led to the passage of the Mortgage Forgiveness Debt Relief Act.
Under this legislation, up to $2 million of forgiven debt is eligible for this exclusion. The forgiven debt must be for a primary residence and can be incurred between tax years 2007 and 2012.
Whether your lender forgave the amount or not, if you sell your home for less than what you owed on it, the loss is not tax deductible.
Q:
Where can I get a copy of the bylaws of a condominium association?
A:
Are you a current or a prospective owner in the association?
If you are a prospective owner you can get – indeed, you must get – a copy, not only of the condo association’s bylaws, but also the master deed and rules and regulations of the association from the seller or the real estate agent you are working with.
They can provide copies of all of these documents for you. I say you must get these documents because you should never purchase a condo (and ownership in the condominium association) without reviewing, and having a lawyer review, all of the documents that establish and govern the association.
In fact, in addition to the condo bylaws and other items listed above, you should also ask the seller or real estate broker to provide copies of the association’s budget and financial statements for you and your lawyer to review.
If you are a current owner in the association and need a copy of the association’s bylaws or other documents, ask the trustees or management company to provide you a copy.
