Will the Mortgage Forgiveness Debt Relief Act be Extended?

I  seem to talk a lot about short sales and for good reason, there is still a good portion of Idaho's  sales in this situation.  I have posted many times regarding short sales and you can review those old posts to learn all about it. I have also mentioned the importance of getting going on a short sale if one is going to need one due to the Mortgage Forgiveness Act being set to expire. This is a big deal with a HUGE impact to borrower/sellers in this situation, and foreclosures as well.

So the question becomes will it be extended? I think it is likely and the following opinion agrees with me. But with the U.S. Congress, do you ever really know?

Many of our readers have asked whether or not we believe theMortgage Forgiveness Debt Relief Act of 2007will 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.

In February, 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.