The Mortgage Forgiveness Debt Relief Act of 2007 is scheduled to expire at the end of this year. As I'm sure you know, the legislation ensures that homeowners who receive principal reductions or other forms of debt forgiveness such as a short sale, on their primary residence, do not have to pay taxes on the amount forgiven. Will the act be extended? The most current straw poll of Congress shows the odds are 9 in 100 or 9% that it will be.
Why is the act so important in today’s housing market? Without it, debt reduced through mortgage modifications or short sales may qualify as income to the borrower and therefore taxable, which for some homeowners in dire housing markets might total tens or hundreds of thousands of dollars. Under those circumstances, in most states, the only option for homeowners to escape a mortgage obligation and the resulting taxes would be bankruptcy. If the legislation is not extended, then it would require homeowners to complete a short sale or mortgage modification before the end of 2012 to avoid a possible tax consequence.
With short sales often taking several months to complete, real estate agents have been urging homeowners to get their homes listed, in case Congress decides against approving an extension past December.
The 2007 exemption already has been extended once and is not considered costly. According to Congressional estimates, tax receipts from the forgiven debt would total only $1.3 billion from 2008 to 2017.
More than a few economists and several trade associations including NAR (National Association of REALTORS) and MBA (Mortgage Bankers Association) agree that continuing the exemption is a crucial part of the housing recovery.
"Of all of the different things that policymakers have done to address the housing crisis, this has been one of the most effective," says Mark Zandi, an economist with Moody's Analytics. "It's not very costly to the IRS or taxpayers, and it's very, very helpful in trying to facilitate working through this very serious problem."
With millions of mortgages still underwater extending the Mortgage Forgiveness Debt Relief Act would seem to be a no-brainer but at the start of the 2012 Congressional calendar year, there seems to be very little bipartisan support.
If you are concerned about possibly loosing this valuable tool in the reconstruction of our national economy contact your congressman or congresswoman and urge them to extend the Mortgage Forgiveness Debt Relief Act of 2007 through the end of 2013.Whether you are buying or selling a home I offer a free, no obligation consultation. As an informed buyer or seller you'll make better decisions. E-mail Nancy@NancyLaswick.com or call me today at (602) 793-1627.
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