KANSAS CITY, MO -- 10/15/08 --
New home sales are down. Foreclosures are
up. In fact, one out of every 416 homes in America received a foreclosure
notice in August*, leaving many taxpayers scratching their heads to
understand their tax liabilities.
"Homeownership is usually a benefit to one's tax situation. But, as more
and more people experience a foreclosure, the complexity of their tax
situations also increases," said Amy McAnarney, executive director of The
Tax Institute at H&R Block (NYSE: HRB).
"Given the current housing market, tax professionals are advising more
taxpayers on what they need to do when they file their returns," McAnarney
said. "H&R Block tax preparers are seeing first-hand an increase in
questions about the tax implications of foreclosures."
The recently passed Emergency Economic Stabilization Act includes tax
breaks to Americans involved in a foreclosure, relieving some of their
financial burden. EESA extends the Mortgage Forgiveness Debt Relief Act to
2013 -- it was originally scheduled to expire at the end of 2009.
Taxpayers will benefit from two kinds of "forgiven debt" on a primary
residence. First, in efforts to not foreclose on a home, a lender may let
the owner sell the home at a loss and forgive the remaining balance due on
the loan. Second, a lender may foreclose on a principal residence then
forgive the remaining debt owed. In both cases, that canceled debt is
usually classified as taxable income.
However, the Mortgage Relief Act allows taxpayers to exclude such "forgiven
debt" from taxable income, as long as the debt was incurred to buy, build,
or substantially improve the residence. The exclusion applies only to
acquisition debt up to $2 million. Cancelled mortgage debt which was not
used to buy, build or improve a principal residence is not eligible for
this exclusion but may be eligible for some other type of relief.
"Because of the decline in the housing market, the number of people who
qualify to utilize the new debt cancellation exclusion could increase,"
McAnarney said. "That's why it's even more important to consult your tax
professional to ensure you are correctly utilizing the changes in the tax
code involving debt cancellation and foreclosure."
* According to real estate tracking Web site www.realtytrac.com.
About H&R Block
H&R Block Inc. (NYSE: HRB) is the world's preeminent tax services provider,
having served more than 400 million clients since 1955 and generating
annual revenues of $4.4 billion in fiscal year 2008. H&R Block provides
income tax return preparation and related services and products via a
nationwide network of approximately 13,000 company-owned and franchised
offices and through TaxCut® online and software solutions. The company
also provides business services through RSM McGladrey and certain consumer
financial services. For more information visit our Online Press Center at
www.hrblock.com.
For Further Information:
Gene King
816.854.4287
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