Congress Extends the Mortgage Debt Relief Act

Congress Extends the Mortgage Debt Relief Act

Homeowners feared that they might have to accept foreclosure if the tax protection in short sales was allowed to lapse.

If you thought that you were going to have to give up on your hopes for a short sale in 2013 due to staggering tax liabilities associated with mortgage debt forgiveness, think again. Congress’ fiscal cliff bill accomplished many tax hikes, but it also extended one form of tax relief in the form of an extension of 2007’s Mortgage Debt Relief Act. The legislation was due to expire on December 31, 2012, but will now expire on December 31, 2013. The act forgives tax liabilities on forgiven mortgage debt accrued via short sales and loan modifications[1]. If the act had not been extended, borrowers who received short sales or loan modifications would have been liable for taxation on what would, on paper, appear to be “windfalls” of multiple thousands of dollars, depending on the terms of their short sale or mortgage adjustment.

Real estate professionals and many homeowners breathed a sigh of relief when the act was extended. One Las Vegas agent reported that many of his sellers had already decided to abandon their short sales and embrace foreclosure if the legislation did not pass in a timely fashion. Short sales account for nearly half (45 percent) of all home sales in Las Vegas at this time[2].

Do you think the extension of the Mortgage Debt Relief Act is a good thing for the market?

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