If you are reading this you probably have figured out that the Mortgage Debt Forgiveness Act of 2007 is due to expire on December 31, 2012. This act gave homeowners who are faced with either a short sale or a foreclosure additional protection of their debt forgiveness becoming a taxable event.
We are watching this issue on a daily basis.
We sent Linda Goold, Director Federal Taxation with the National Association of Realtors an email right around the 1st of November to get an update. Her update was as follows:
“We do not know when/if Congress will extend the mortgage cancellation relief provision. Congress has been out of session since mid-September, and will not return until November 13. No action is possible until then, at the earliest.
About 100 provisions (unrelated to the major issues such as the Bush tax cuts) expired at the end of 2011 or will expire at the end of this year. The Senate Finance Committee has crafted a package that renews and/or extends many of them through the end of 2013. That package has not been scheduled for a vote, however, and is not likely to be scheduled, at least during November. The House has given no signal as to how it will address these provisions.
There is NO chance that the mortgage cancellation provision would be acted on as a separate, free-standing provision. Tax bills do not move as single-issue legislation, but rather as large packages. The leadership of the House Ways and Means Committee has made it clear that the expired and expiring provisions will move as a package or not at all.
It would be possible for Congress to act on the expired provisions early next year and make the renewal/extension retroactive to January 1, 2013. That would mean that no one would have to worry about the relief during 2013. That would provide no comfort, however, to those sellers who are unable to close before December 31, 2012.”
We then got an update on December 12th from a fellow Realtor who passed on an update from Lindsay Shuba, NAR Government Affairs Representative via Craig Sanford, 2011 Region 11 Vice President. Her update is:
““Right now, the CFA on the Mortgage Cancellation extension is nearly at 11%, which is a great response rate. The window of opportunity for folks to respond to that CFA is closing however, because a new CFA is being issued focusing on protecting MID in fiscal cliff negotiations.
In terms of the actual extension, NAR’s lobbying team is fully engaged on the issue but it is currently caught up with the deliberations on the fiscal cliff and other expiring tax extenders. Our lobbying and national Leadership Teams continue to hold meetings with leaders on both sides of the aisle, and will be meeting with Ways & Means Committee Chairman Dave Camp. We have been told by Republican and Democrat leaders in both parties that extending this is a priority, but cannot guarantee it will be extended because of the larger negotiations about the fiscal cliff and the Bush tax cuts. The two main variables here are the vehicle (what sort of bill/package will be the driver) and the substance of the vehicle (if any tax extenders are included). It is highly unlikely that any clean extension of Mortgage Cancellation- or any tax extender on its own- will move independent of a tax extenders package, or a fiscal cliff deal.
If an extension happens it will likely not be until Christmas if not the end of the year; I know this doesn’t do much to help put people’s minds at ease among our membership. Congress could retroactively extend the provision next year as it would be a tax for the 2013 tax year (paid in 2014), but that doesn’t do much to assure certainty to folks thinking about short sales, loan mods, or foreclosures that might not be completed by Dec 31.
Please stress to all Realtors that they should not give their clients tax advice as each individual's situation is different, but they should be aware that an extension of this tax provision is far from certain.”