The 2016 Appropriations Bill (H.R. 2029) was passed by Congress and it has been signed by the president Barrack Obama on December 18th, 2015, as part of this bill the Mortgage Forgiveness & Debt Relief Act of 2007 was also extended through 2016.
This extension is huge for borrowers and homeowners who are suffering with an underwater home and facing potential foreclosure and even those who are in the process of completing a Short Sale, or have recently completed a Short Sale on their property.
The Mortgage Forgiveness & Debt Relief Act provides a tax exemption for borrowers and homeowners with “income” resulting from debt forgiveness that is related to a foreclosure, a short sale and also for principal forgiveness of loans as a result of a Loan Modification.
When a lender waives their right to pursue for a deficiency in a short sale or approves to not to sue for the deficiency after a foreclosure sale or short sale the debt is “forgiven”. The forgiven debt is then viewed and considered taxable income by the IRS.
Per the Mortgage Forgiveness Debt Relief Act taxpaying borrowers and homeowners can exclude this “income” resulting from the forgiveness of debt on their principal residence when it comes time to file.
This extension will continue this tax protection for homeowners through Jan. 1, 2017. So if you lost or let go of your home in a foreclosure, a short sale or a deed in lieu, or if you had a loan modification that forgave some debt in 2015, or 2016, you may be able to benefit from the extension of this act.
Of course there are exceptions and potential restrictions that could keep you from benefiting from this so if you are in a situation where you may be coming up on some forgiven debt please do some more research.
If you have questions about an underwater mortgage, loan modification, foreclosures or short sales please call us at 888-572-8020.
For more information on this extension you can also visit https://www.irs.gov/uac/Home-Foreclosure-and-Debt-Cancellation