The Internal Revenue Service (IRS) has clarified that some homeowners who receive financial assistance from the federal government under the Home Affordable Modification Project (HAMP) will not be required to pay taxes on that support. Specifically, funds received from the U.S. Treasury Department’s Housing Finance Agency (HFA) Innovative Fund for the Hardest-Hit Housing Markets (The “HFA Hardest Hit Fund”) and the Department of Housing and Urban Development’s (HUD) Emergency Homeowners’ Loan Program are exempt from taxation.
These aid programs provide financial assistance to struggling homeowners, either by making payments on the homeowner’s mortgage loan or by providing financial support during an owner’s transition to lower-income housing. Since payments under these programs are not made in exchange for any service performed by the homeowner, they can be excluded from the homeowner’s gross income for tax purposes under the general welfare exclusion.
Homeowners and lenders also should not report any mortgage interest deductions or receipts for payments made by a government agency. Placerville, El Dorado County, California region homeowners need to know this and pass on this information!
Complete details at: “Guidance on Tax Consequence of Distressed Homeowner Payments Provided (IRS Notice 2011-14)”
Information credit given to the first tuesday Journal Online; by first tuesday Realty Publications, Inc.