Thanks to a spending bill signed by President Obama on Dec. 18, 2015, the Mortgage Forgiveness Debt Relief Act has been extended to Dec. 31, 2016. The extension will also retroactively cover mortgage debt that homeowners canceled in 2015.
The Mortgage Forgiveness Debt Relief Act helps homeowners avoid paying taxes on home mortgage debt that has been forgiven. In normal circumstances, any mortgage debt that has been forgiven by a lender is considered taxable income.
Initially passed in 2007, the Mortgage Forgiveness Debt Relief Act states that up to $2 million can be forgiven and not taxed if: the house has been the primary place of residence for at least two out of the last five years; or the homeowner has used the debt to add improvements and make upgrades to the home.
Unfortunately for anxious homeowners, this is not the first time that an extension of the MFDRA has come down to the wire and left them holding their breath. In 2014, President Obama didn’t sign an extension until December 29.
The good news is that this year’s extension will not only apply to short sales that took place in 2015 but also the ones that will take place in 2016. Previous extensions of the MFDRA only covered short sales from the preceding year.
There is no doubt this extension is a huge relief to homeowners who have faced financial burdens in the past few years, easing concerns that they might have had to move forward with a short sale.
Stephen K. Hachey, a Florida real estate attorney, can help your wade through this process and determine a positive solution. Contact him at 813-549-0096.
The opinions in this post are solely those of the author. The author takes full responsibility for the content. Like all blog posts, this is offered for general information purposes and does not constitute legal advice.