The Senate approved an extension of the Mortgage Debt Forgiveness Act by a wide margin this week, bringing home owners who did a short sale this year one step closer to tax relief. The bill, which passed the House of Representatives two weeks ago, is expected to be signed by President Barack Obama.
The Senate approved the bill in a 76-16 vote.
The Mortgage Debt Forgiveness Act expired at the end of 2013, making distressed home owners responsible for paying taxes on “phantom income” from the forgiven debt once their properties are sold. The tax on a 2014 short sale or workout would have been due this coming April 15 had Congress not extended the measure.
The average short sale has a mortgage forgiveness of about $75,000.
The National Association of REALTORS® issued a call to action earlier this month, urging REALTORS® to submit letters to their Congressional representatives in support of extending the Mortgage Debt Forgiveness Act.
“NAR applauds Congressional leaders in both chambers for their effort to pass this legislation before adjournment,” NAR President Chris Polychron said in a statement. “REALTORS® strongly supported the bipartisan Mortgage Forgiveness Tax Relief Act, which was included in the package to prevent underwater borrowers from paying taxes on any mortgage debt forgiven or canceled by a lender in a workout, or after their home was sold for less money than was owed.”
The extension will only apply to short sales conducted in 2014. Any further extensions will have to be considered by the new Congress, which begins its 2015 session in January.
Source: “Senate Approves Short Sale Tax Breaks,” HousingWire (Dec. 17, 2014)