On December 16, 2014, Barak Obama signed a bill which extended the Mortgage Forgiveness Debt Relief Act. This act covers any mortgage debt which is canceled (usually via Short Sale / foreclosure / loan modification principal reduction), through the end of the year 2014.
The Mortgage Forgiveness Debt Relief Act prevents homeowners who went through a short sale, or a foreclosure, or received a "principal reduction" via loan modification - from being taxed on the amount of debt forgiven. This forgiven debt is sometimes called, "phantom income."
In order for homeowners to qualify for this tax exemption in 2014, their short sale, foreclosure, or principal reduction must close escrow by the end of 2014 (in December).
Although the Act has only been extended through last year - 2014 - Congress is expected to discuss another extention for 2015. Thank God! Note: The past few years, the extension has come at the very end of the year, in the month of December..
So for now - as of February 2015 - mortgage debt forgiven in 2015, might be considered "taxable income."
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