Scottsdale RealtorThe 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 Scottsdale Realtorestimates, 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.

All content in this post is protected by copyright. © Nancy Laswick 2012. All Rights Reserved.

Nancy Laswick Phoenix Scottsdale Realtor

       
           
 
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14 Comments on Will The Mortgage Forgiveness Debt Relief Act Be Extended?

MAY
01
2012
1 Featured Post

Good article.  As much as I abhor a handout for people that made poor real estate decisions, I support this one.  I agree that eliminating this tax burden reduces the probablility that the person will declare bankruptcy.  And, in a bankruptcy, so many other items (like Credit Card debt) are rolled is as collateral damage, and this costs EVERYONE.
10:20am • #1
623,862 Points 43 Featured Posts Outside Blog Called Shot Master

Nancy, great information.  Let's hope this gets extended.  
10:47am • #2

Nancy,

Thank you for this information.

Very important and timely.

Kevin
2:53pm • #3

Sure it will be extended. Look at all the votes the program can buy. You don't get re-elected by taking free money away from the sheep.
6:13pm • #4
1,542,562 Points 116 Featured Posts Localism Sponsor Outside Blog Called Shot Master

I can't imagine that this won't be extended, but we can't assume.  Letting our representatives know that this is still very important to the housing market is a must.

 

 
6:48pm • #5
262,685 Points 8 Featured Posts Outside Blog Called Shot Master

Eric, I agree bankruptcy is far worse for everyone involved including taxpayers.

Hi Juli, one thing we can do is let the congress know how we feel.

You're welcome Kevin.

Mike, I don't think we can take extension for granted. The support that it had even a year ago has been tremendously undercut and historically only the hottest of hot button issues usually get any attention from congress in an election year and typically those are voted along party leadership lines.

Chris Ann, I couldn't agree more!
8:03pm • #6

Nancy, as you say, with millions of mortgages still "underwater", it only makes sense to extend the Mortgage Forgiveness Debt Relief Act - but it does appear there is some disfunction between the congressional parties.  Let's hope they can all get on the same page and do what is needed!

I'm sure folks can help by contacting their elected representatives and let them know how it impacts them?

Suggested!
9:29pm • #7
MAY
02
2012

Nancy, never underestimate thugs in Armani Suits.
7:45am • #8
108,020 Points 8 Featured Posts

Nancy: Great post- This is a really important issue for our industry.  I was speaking with an attorney a week or so ago who seemed to think short sales would go away at the end of this year.  I had to inform him that as long as homes are under water, short sales won't "expire"- just the tax breaks for the people who need them.  Thanks for sharing!
12:08pm • #9
262,685 Points 8 Featured Posts Outside Blog Called Shot Master

LOL, I try to never underestimate anyone Mike.

Andrew, perhaps it was wishful thinking on his part... more tax burden = more opportunity for bankruptcy proceedings.

 
3:52pm • #10
262,685 Points 8 Featured Posts Outside Blog Called Shot Master

Good Afternoon Karen, you hit the nail on the head! There are times when it seems like the new Congressional Motto is "Congress, we put the fun in dysfuntional" I'm sorry, was that too sarcastic for an election year?

Thanks so much for suggesting!
4:00pm • #11
304,613 Points 2 Featured Posts

Nancy - 9% chances of extension/renewal are NOT good!  Consumers do need to contact their congresspeople and ask that the act be extended!
5:07pm • #12
1,214,142 Points 119 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Nancy - I am stunned that the chancers of extending it are 9%. I thoght they were ore like 99%. Wow. So, what is the point to short sell and avoid the defficiency only to be hit with a tax on forgiven income?
10:18pm • #13
MAY
03
2012
262,685 Points 8 Featured Posts Outside Blog Called Shot Master

Sharon, I couldn't agree more.

Jon, you've hit the nail on the head, why indeed? Without extension I believe foreclosures and bankruptcies will increase.
8:03am • #14


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Nancy Laswick, Scottsdale & Phoenix Area Realtor, EPRO, CDPE, SFR (REALTY ONE GROUP) Rainmaker_large

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Scottsdale, AZ

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