Short Sales & Taxes: Will Lawmakers Revive 'Mortgage Debt Relief Act'?

Short Sales & Taxes: Will Lawmakers Revive 'Mortgage Debt Relief Act'?Since 2007, the federal Mortgage Debt Relief Act has helped distressed homeowners who have had mortgage debt forgiven after a foreclosure, short sale, or loan modification.
The law made it possible for these homeowners to exclude the forgiven debt from their calculation of taxable income, saving them thousands, or even tens of thousands of dollars, in taxes that could have been owed.
But U.S. lawmakers have failed to revive the Mortgage Debt Relief Act, which expired on New Year’s Day.
Lawmakers are likely to consider the issue, and extending dozens of other tax provisions that expired at year’s end, when they return from the holiday break next week. An extension of the mortgage forgiveness tax break could be passed retroactively, just as it was was done last year.
Forty-two state and territorial attorneys general signed a letter recently which urges Congress to renew the law for another year, especially as the housing recovery seems to be losing steam with high interest rates and tighter mortgage standards looming in 2014.
An extension for 2014 is included in the Mortgage Forgiveness Tax Relief Act – S. 1187 and H.R. 2788 – both of which are stalled in committee.
“At the state level, we continue to work daily to assist homeowners trying to save their homes or recover from a mortgage debt they cannot manage…” the letter states. “But this assistance will be less meaningful if the very homeowners that receive mortgage debt relief are hit with tax bills they cannot afford. Therefore, we strongly urge you extend the Mortgage Forgiveness Tax Relief Act that is vital to our continued economic recovery and to our citizens who have already lost so much.”
The relief act’s extension last year was seen as vital to the recovering housing market. Short sales nationwide had been surging in anticipation of the exception’s end on Dec. 31.

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