BREAKING NEWS…One Year Extension of the Mortgage Forgiveness Debt Relief Act!
For any home owner who has engaged in a short sale of their primary dwelling in 2014 (or may be ready to do so before the end of this year), or had to go through a foreclosure this year, and ended up effectively paying less than what they owed on their loan, relief from taxation of the phantom income associated with debt forgiveness may be on the way.
The Mortgage Forgiveness Debt Relief Act (the Debt Forgiveness Act), expired on December 31, 2013. This meant that any homeowner who went through a short sale or foreclosure of their primary dwelling in 2014 faced the possibility that the homeowner may have to pay income tax on the amount of the loan debt they did not have to pay – in many cases, this represents a very sizeable liability. For those homeowners who qualified, the Act had provided relief from having to pay such a tax.
While there have been a number of efforts to extend the Act for some additional period of time, none have been successful, until just a few days ago. The US House of Representatives overwhelmingly passed HB 5771 (known as the Tax Increase Prevention Act of 2014) on December 3, 2014, and the Act has been sent to the Senate. The Act extends the life of a number of tax related measures, in stopgap fashion, and specifically includes an extension for just one year of the Debt Forgiveness Act, with the new deadline for closings being December 31, 2014.
It is anticipated that the Senate will also pass the Act and that President Obama will sign it. Of course, this does not do anything to help any homeowner in a distressed situation who may need to close in 2015, and he or she may very well have to go through the same process again of not knowing what Congress will do.
But, for those homeowners who may qualify, this anticipated one year extension of the Debt Forgiveness Act is good news indeed.