Mortgage Forgiveness Debt Relief Act – Will it be extended?
Congress passed the Mortgage Forgiveness Debt Relief Act of 2007 as a means of providing underwater homeowners with options to reduce the tax liability resulting from forgiven mortgage debt. The act is now
set to expire on December 31, 2012.
In August of this year, the Senate Finance Committee approved a bill that would extend the Act through 2013 and also include energy-efficiency tax credits for remodeling and home construction. But the Senate has yet to actually vote on the bill and it’s unlikely that will occur before the end of the year.
That means a lot of uncertainty for homeowners trying to figure out what to do with underwater homes at this point. If the law is extended then proceeding with a debt solution was the right thing to do. However, if the Act is not extended, some homeowners may wish they had waited and in fact, some probably will, simply because it’s difficult to know exactly what Congress will do at this point.
But savvy tax professionals will tell you that there are still viable options for addressing the tax issues, even if Congress fails to act. Some primary residences are covered by the current laws and will not be subject to
tax at all. Investment properties may also be covered by capital gains provisions of the current tax code and will also not be subject to tax. In addition, insolvency or bankruptcy may also be a means of avoiding any tax
If you’re considering a short sale, facing foreclosure or some other transaction that could result in debt forgiveness, talk to your tax professional. The best news yet is this: if your taxes are prepared properly, the chances are good that any debt forgiveness may still not be taxable. And if Congress does actually extend the Act, the news just gets better.