Anyone who had mortgage debt forgiven this year, as is common in short sales or principal reductions, can breathe a little easier as President Obama is expected to sign an extension of the Mortgage Debt Forgiveness Act.
The tax break should help distressed homeowners who faced possible foreclosure actions before having mortgage debt forgiven in 2014.
The Senate late Tuesday approved a package of temporary tax breaks that includes an extension of the Mortgage Debt Forgiveness Act, but only until Dec. 31.
The extension allows taxpayers to claim them on their 2014 returns. The $42 billion tax extenders bill provides a range of tax breaks. It passed the House earlier this month. President Obama, who is expected to sign it.
Since 2007, the law has helped distressed homeowners who have had mortgage debt forgiven after a foreclosure, short sale, or loan modification.
But the last extension of the tax break expired Dec. 31, 2013. The housing industry has been lobbying all year for another extension.
Before the law, debt that was forgiven or cancelled by a lender had to be included as income on your tax return and became taxable.
Forty-two state and territorial attorneys general signed a letter late last year urging Congress to renew the law for another year.
Those who fall under the tax break under the Mortgage Forgiveness Debt Relief Act should have received, or are about to receive, Form 1099C (Cancellation of Debt) from their lender, if the amount of cancelled debt was more than $600.