There seems to be some uncertainty surrounding whether Congress will again extend the Mortgage Forgiveness Debt Relief Act (H.R. 3648), as it did last year when it extended the Act until the end of this calendar year. Some are starting to worry about what is likely to happen if they let the Act’s tax relief provisions related to foreclosure avoidance expire.
I’m going to go out on a limb here and say, “Shhhh… stop bringing it up, that’s what Congress is getting us for Christmas this year, and it’s supposed to be a surprise.”
I simply don’t think there’s any real chance they won’t extend the Act for at least another year for exactly the same reasons they extended it last year.
President Obama released his budget proposal for this calendar year on February 13th, 2012. His proposal called for the Mortgage Forgiveness Debt Relief Act to be extended and here’s how he explained the reasons why…
”Although there have been improvement in the residential real estate market, there is still an elevated number of cases in which homeowners may have discharge of indebtedness income with respect to their home mortgage loans. And since the ways to avoid foreclosure often involve some forgiveness of debt, it was necessary for the expiration of this Act to be extended.”
Yeah, well if that was a good enough reason then, it’s certainly good enough now. In fact, I could argue that the situation this year and last are largely identical as related to foreclosure and the need to discharge debt related to foreclosure loss mitigation efforts like short sales, modifications that offer principal reductions and Deeds in Lieu arrangements.
H.R.3648 Mortgage Forgiveness Debt Relief Act was signed into law in December of 2007, with the goal of relieving homeowners from the taxes on debt that was forgiven in a loan modification, short sale, foreclosure, Deed in Lieu or refinance.
Originally, it was to expire at the end of 2012, but that was when we were so optimistic about the duration of the housing market’s malaise. And so last year, without hesitation or histrionics, it was extended through the end of this calendar year.
Being a tax issue, you would be well advised to consult with a CPA or tax accountant before making any decisions… the question of whether you would, will or won’t have a tax liability depends on things like …read more