Many of our readers have asked whether we believe the
Mortgage Forgiveness Debt Relief Act of 2007 will be
extended past its current expiration scheduled for the end of the year. As a
reminder, the legislation ensures that homeowners who received principal
reductions or other forms of debt forgiveness on their primary residences do not
have to pay taxes on the amount forgiven.
The reason this act is important in today s housing market is that, without
the act, debt reduced through mortgage modifications or short sales qualifies as
income to the borrower and is taxable. If the legislation is not extended, then
it would require homeowners to complete a short sale or modification prior to
year s end in order to avoid a tax consequence.
Last week, DSNews reported:
Obama's FY2013 budget proposal includes an extension of the Mortgage
Forgiveness Debt Relief Act of 2007& In the Treasury's Green Book, its summary explanation of the
administration s budget proposal, it calls for an extension of the tax break
due to the continued importance of facilitating home mortgage modifications.
The administration is proposing an extension that would apply to any
amounts forgiven before January 1, 2015.
In today s political environment, the passage of
any budget proposal could be considered doubtful. However, both parties seem to
be in agreement that this provision should be extended. We can only hope that it
doesn't fall victim to an election year.
Disclaimer: As with
all tax issues, we strongly suggest you consult with your accountant to find out
how this may impact you and your family.