Mortgage Debt Forgiveness Act Extended!!

As reported here, Congress has passed the extension of the Mortgage Debt Forgiveness Act that expired back on December 31, 2014 and made it applicable to 2015 and through January 1, 2017.

If you remember, under the federal tax code, when a lender forgives or cancels a debt obligation you owe then the IRS treats that amount forgiven as income to you that you pay taxes on.

In 2007, Congress created a special exception to this rule for owners who had mortgage debt canceled as part of a short sale arrangement with their bank, a foreclosure or a loan modification. Since then the exception has been extended until it expired last December 31, 2014. 

That left thousands of homeowners who received modifications, waivers of deficiency, and did short sales in 2015 with possible huge tax bills coming.  For example, an owner who participated in a short sale and had $100,000 of mortgage debt forgiven might owe the IRS $28,000 or more.

The extension of this act gets homeowners off the hook for any IRS debt through the end of 2016.

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