Merry Christmas - Mortgage Debt Forgiveness is Back!
Did you have to short sell your Hamilton Mill subdivision home in 2014? If you did, under the current law, any mortgage debt forgiven would have been taxed as income. Luckily, on Tuesday the Senate passed an extension of the Mortgage Debt Forgiveness Act on any short sale that was conducted in 2014. (The Mortgage Debt Forgiveness Act also passed by a wide margin in the House of Representatives two weeks ago.)
The Mortgage Debt Forgiveness Act offers relief to homeowners who would have owed taxes on forgiven mortgage debt. So, homeowners who had short sales in 2014 are now one giant step closer to receiving tax relief on any money they received as the result selling their home.
Originally signed into law by President Bush, the Mortgage Forgiveness Debt Relief Act of 2007 was created in the aftermath of the housing bust. The intention was to protect homeowners who lost their home in a short sale or deed-in-lieu of foreclosure from the double whammy of a whopping tax bill.
The new and comprehensive tax bill also allows homeowners to deduct mortgage insurance premiums, along with 53 other provisions.
According to a recent estimate from RealtyTrac, the average short sale has an estimated mortgage forgiveness of $88,456.
And according to a further data provided by RealtyTrac, there have been more than 121,700 short sales through October of this year, with a total mortgage debt forgiveness of nearly $10.8 billion.
RealtyTrac also estimated that the potential taxes on the average short sale to be $22,114, which would have brought the total tax liability to $2.7 billion.
The National Association of Realtors celebrated the vote. “NAR applauds Congressional leaders in both chambers for their effort to pass this legislation before adjournment,” NAR President Chris Polychron said.
“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 cancelled by a lender in a workout or after their home was sold for less money than was owed,” Polychron added. “We are grateful to Sens. Debbie Stabenow, D-Mich., and Dean Heller, R-Nev., and Reps. Tom Reed, R-N.Y., and Charlie Rangel, D-N.Y., for championing the provision.”
The Mortgage Debt Forgiveness Act now heads to President Obama, who is expected to sign the bill into law.