The
Mortgage Forgiveness Debt Relief Act of 2007 has provided relief to thousands
of borrowers who have completed short sales or obtained loan modifications with
mortgage principal reductions. Before this law was enacted, any forgiven mortgage
debt was taxable by the government. For example, if a lender reduced a
borrower’s principal balance by $100,000.00, then the borrower would have to
report that forgiven debt as ordinary income and pay taxes on it. This was, of course, impractical and
unreasonable for borrowers who were already experiencing financial hardship and
were relying on modifications or short sales to save them from foreclosure.
Most borrowers could not afford their tax bills and were stuck in the same
situation as they were in before they had requested help from their lenders.
Under The
Mortgage Forgiveness Debt Relief Act of 2007, borrowers do not have to pay
taxes on cancelled mortgage debt as a result of a modification or foreclosure
of their primary residence. This act was originally supposed to end at the end
of 2012, but it was granted an extension
through 2013 on the third day of the new year.
An extension
may be granted through 2014, but it is unlikely. Both H.R. 2788 and H.R. 2994 are
bills that will extend The
Mortgage Forgiveness Debt Relief Act for at least another year, but they
were each referred to committee over the summer and have received no attention
since. There are 44
cosponsors for H.R. 2994, but it is already now the middle of December and
time is running out. In order for this bill to be enacted, it still needs to
pass the House and Senate and it must get signed by the President before
December 31, 2013. It is improbable that an extension will be granted, but not
impossible; especially with the economy rebounding and many forgetting the
plight of those left behind. It’s important to not forget these individuals
that still need relief and who have often spent years trying to get a
modification or a short sale approved only to now be taxed when they finally
get the relief that they have hoped for.
So for them,
please tell your local representative how important it is that these Bills are
passed and The Mortgage Forgiveness Debt Relief Act of 2007 is extended for
another year.
Thank you to Lieb at Law's Assistant Case Manager, Jessica Vogele, for sharing this valuable information.
