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Will tax liability on home loan modifications return at year's end?

Many people who fall deep into debt look into what options may be available to find meaningful debt relief. It is important to consider options, but it is also important to speak with professionals to help in making informed decisions on how to proceed. Cincinnati bankruptcy and credit restoration attorneys know that our culture relies heavily on credit to make transactions in day to day life.

A recent report highlights one aspect that some people may tend to overlook when seeking debt relief. In 2007, Congress enacted a tax waiver law related to home ownership and loah modifications. The waiver was extended through this year as part of the bank bailout bill. The trouble is: The tax waiver law is slated to expire if Congress does not act to extend the provision.

Generally, forgiven debt is seen as a taxable event. What that means for homeowners is that typically, a short-sale, a home loan modification or a foreclosure may lead to a bill from the tax man in general terms. The current law, known as the Mortgage Forgiveness Debt Relief Act, waives the tax liability for homeowners and is slated to expire in ten months. If the current law is not extended before it expires, tax liability on home loan issues may easily return for Ohio's distressed homeowners.

Some lawmakers reportedly are bracing for a battle to extend the tax waiver law. But other issues seem to be plaguing Congress with the budget issues and political debate surrounding the nation's tax code.

The important thing to remember is that the homeowner's tax waiver was instituted after the housing market bubble burst several years ago. But tax laws are complex, and when working with other types of debt, it is important to speak with professionals when seeking to negotiate debt as a method of debt relief to help top avoid unexpected surprises that can arise from the tax code.

A discharge in bankruptcy is not considered a forgiveness of debt and is treated differently under the Internal Revenue Service code. In an individual case, Cincinnati area residents experiencing financial troubles should consider speaking with legal counsel to learn what consequences one method of debt relief or another may expose a person to and what other options may be available in finding a fresh start.

Source: Fox Reno, "If Congress doesn't act, distressed homeowners could take another hit," Karoun Demirjian, Feb. 28, 2012

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