Though this may not apply to most clients of wealth managers, there may be, through “six degrees of separation,” some people within their sphere of influence that would benefit from IRS Tax Guidance, announced Wednesday, regarding distressed homeowners who have received help from various state and federal programs designed to avert “avoidable foreclosures.”
The IRS has issued tax guidance regarding “payments made to or on behalf of financially distressed homeowners under programs designed by state housing finance agencies (State HFAs).”
Much of this assistance is in the form of “forgivable loans” made to homeowners in distress who qualify for the various programs. They are “forgivable,” meaning that the “Treasury Department and the State Programs do not expect homeowners to make more than a minimal amount of payments on Forgivable Loans,” the guidance states, as long as the homeowner continues to make or assist in making payments on the original mortgage, and meets other criteria that vary with the different programs.
The programs include the Housing Finance Agency Innovative Fund for the Hardest-Hit Housing Markets (HFA Hardest Hit Fund), applicable in states in which home prices have declined 20% or more from the peak or unemployment is higher than the national average. The programs in Alabama, Arizona, California, the District of Columbia, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina and Tennessee are eligible.
This also includes other federal programs to help distressed homeowners in states not covered by the Hardest Hit Fund.
Income Tax Consequences