#mortgage relief act
Short sale and foreclosure tax slated to return in 2014
The time has come. The Mortgage Debt Forgiveness Relief Act has finally run its course, and many homeowners will now be on the hook for short sale tax or foreclosure tax in 2014.
Let’s start with the back story. Originally passed in 2007, the Mortgage Debt Forgiveness Relief Act provided a tax exemption to homeowners when their mortgage company forgave debt though a short sale or foreclosure.
Let’s say you had purchased a home for $400,000 and took out a mortgage for $300,000. Later, you short sold the home for $200,000 and your lender agreed to forgive the balance of $100,000. Instead of the IRS considering that forgiven $100,000 as income, Congress allowed homeowners to short sell or foreclose without having to pay the IRS for their canceled debt.
In October 2008, due to the ongoing hardships suffered by the housing market, the act was extended through December 31, 2012. It was then extended once more by Congress 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.”
With 6.4 million homeowners still underwater on their mortgages, meaning they owe more on the loan than the property is worth, the government aid is still very much needed. However, despite bipartisan support, the law expired at midnight on Tuesday, December 31st and wasn’t extended because lawmakers were home for the holidays.
All hope is not lost however, as pending legislation in the House and Senate would extend the Mortgage Debt Forgiveness Relief Act through 2015, the LA Times reports. Such an extension could be passed retroactively, going into effect January 1st, as it was last year.
The extension of the act would not only alleviate tax burdens for homeowners, it would help keep the housing recovery alive. The legislation for extension is backed by the Mortgage Bankers Association and the National Association of Realtors, to name a few.
Seeing as the health of the housing market is indicative of that of the overall economy, lawmakers will hopefully do whatever they can to extend the act—ensuring the housing recovery is sustainable rather than a fleeting resurgence.
Mortgage Debt Forgiveness Relief Act 2014 by HouseHunt
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Thanks for your comment. Good luck with the new home! We hope the act gets extended as well, many a homeowner needs a break!
When will we know if these guys (Congress) are going to pass the extension or just let 6 million go down in flames? What s the hold up and why should it end before it is finished? We still have millions of Americans twisting in the wind. I am a REALTOR® and I have clients waiting for this act with Open escrows and just waiting for the bank to ok an all cash offer at nearly market price. They have passed it around the departments for weeks on end, waiting, as well, for Congress to act. Most people at that point in their lives don t have a pot to pee in or the window to throw it out of! Taxing poor people for market failures caused by lousy policies is just a way to shift the blame onto their backs. I am conservative but even I would call these folks victims. So, Congressmen Congresswomen, put aside your numerous perks for a minute and pass the extension of the Mortgage Debt Relief Act!
Allan, we agree, the passage of this act would aid thousands of homeowners. We hope it passes ASAP!
I found out in February of this year that Wells Fargo had forgiven my mortgage on my home. I had been behind for 4 months and when I contacted them to make payment, I was told that they had written off the debt and would pursue no claims to the property. I was told that they notified the Recorder of Deeds for my county that they had no further interest in the property. I immediately went to the Recorder of Deeds office to obtain a copy of Satisfaction Piece.
Wells Fargo also said they would be sending me a 1099 which I have not received as of today. Should the 1099 be for 2013, or am I to expect one in December of this year? The Satisfaction Piece was dated December 20, 2013 and recorded on December 31, 2013.
I have been going thru foreclosure forever and now they are saying I can get a deed in lieu instead is this covered by the mortgage debt relief program if they reinstate it for another year greentree can t give me any answers on this and I haven t got a reply back from the IRS either. Can you give me an answer so I don t make a mistake and have to pay taxes on it
Your best bet is to do some research. The government and/or bank are probably not going to grant you a deed in lieu, they are going to make you short sale and/or pay some amount. And yes, you will be taxed on any amount forgiven because the government counts it as income.
Please contact a real estate attorney sooner rather than later to make the right decision since we don t have all of the facts about your specific case.
Best of luck!
I had a house foreclose and of course lost it in 2008, the IRS is still after me for the remaining $89,000 and take my tax returns and will eventually wage garnishment. the house was sold and the amount was not taken off the amount I so called owe. how do I get this forgiven and who do I contact, I am at a loss and cannot find anyone to go to. help.
So sorry to hear this has been such a hastle. Since I m not a lawyer, your best bet would be to get in contact with a real estate attorney to sort out the legal issues you re having.
Sorry I can t be of more help!
Does anyone know what the extension status? If it does not go through a serious hardship will be layed upon millions of Americans.