The Mortgage Debt Forgiveness Relief Act is expiring
The Mortgage Debt Forgiveness Relief Act is expiring and that means that homeowners who are facing short sales or foreclosures may have to pay the taxes on the money that forgiven in 2014. The Mortgage Debt Forgiveness Relief Act has finally run its course, and many homeowners will now be on the hook for short or foreclosure taxes in 2014.
The Mortgage Debt Forgiveness Relief Act was passed in 2007 and it provided a tax exemption to homeowners whose debts were forgiven thought a short sale or foreclosure.
If a homeowner purchased a home for $400,000 and took out a mortgage for $300,000 and later, was forced to short sale the home for $200,000 and the lender agreed to forgive the balance of $100,000.Normally, the IRS would consider that forgiven $100,000 as income.” With the Mortgage Debt Forgiveness Relief Act, Congress allowed homeowners to short sell or foreclose without having to pay the IRS for their canceled debt.
In October 2008, the act was extended through December 31, 2012 and again through December 31, 2013. According to the LA Times, “as much as $2 million in forgiven debt for each household was exempted from federal taxes under the 2007 law.”
There are about 6.4 million homeowners still underwater nationally and that means that there is still an urgent need to once more extend the Mortgage Debt Forgiveness Relief Act.
According to the LA Times report, there is pending legislation in the House and Senate would extend the Mortgage Debt Forgiveness Relief Act through 2015. Such an extension could be passed retroactively, going into effect January 1, 2014.
The extension would not only help distressed sellers but it would help keep the housing recovery going. The legislation is backed by the Mortgage Bankers Association and the National Association of Realtors and other.
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