Wednesday, March 26, 2014

Minnesota Mortgage Debt Tax Relief update     

The state of MN had not previously conformed to the federal tax law in 2013 so there was a possibility that homeowners that had gone through foreclosure or short sale in 2013 would owe MN state taxes on the forgiven debt even though they did not have federal tax obligation due to the Mortgage Debt Relief Act that expired December 31, 2013.  

In the new Minnesota tax law just signed by Governor Dayton this week, MN has now conformed to the federal tax law and made it retroactive to December 31, 2012.  Therefore, if homeowner obtained mortgage debt relief through foreclosure or short sale in 2013 and did not have a federal tax obligation, they will not owe taxes to the state of MN either.  Below is a link regarding that announcement. 

The Mortgage Debt Relief Act has still not been extended by the federal government for 2014.   Below is a link for more information on that issue.  Remember that homeowners with mortgage difficulties receive a 1099c on forgiven mortgage debt through both short sale and foreclosure so foreclosure is not a relief from that possible taxable event.  Whether or not homeowner has a taxable event in those cases depends on their “solvency” at the time the debt was forgiven due to the non-extension of the MDRA by the federal government.  Homeowners need to consult with their own tax professional to find out if they will have income taxes  due on the debt forgiven in their short sale or foreclosure.  Below is a link with more information on that issue.