Late Tuesday night, Congress reached a settlement in the “fiscal cliff” negotiations. As a result, the Mortgage Forgiveness Debt Relief Act has been extended for another year. The measure will continue to exempt from taxation mortgage debt that is forgiven when homeowners and their mortgage lenders negotiate a short sale, loan modification (including any principal reduction), or foreclosure.
The extension is great news for homeowners as it was one of the attractive features of completing short sales. Qualified homeowners, on their principal residence, will continue to be excused from paying taxes on forgiven mortgage debt through 2013.
Please keep in mind that homeowners should always consult their tax advisor so they can evaluate their personal situation and understand their tax payments.
Over the past few months we have seen short sale listings decline and more financially strapped homeowners letting their homes go to foreclosure. The extension of the Mortgage Forgiveness Debt Relief Act will provide a much needed alternative, of a short sale, which will avoid foreclosure and be less harmful to the credit history.Â
