Wednesday, December 31, 2014

Mortgage Forgiveness Debt Relief Act is Extended

Thousands of Americans have a reason to celebrate this year end of 2014. On December 16, 2014, President Obama signed a bill passed by Congress at the 11th hour that extended the Mortgage Forgiveness Debt Relief Act ("Relief Act") to cover any mortgage debt of a homeowner's primary residence that was cancelled or forgiven after the residence went through a foreclosure sale or a short sale. However, the bill only extends the Relief Act retroactively and is set to expire on December 31, 2014.

The Mortgage Forgiveness Debt Relief Act was last updated on January 2, 2013 and expired by the end of 2013. Therefore, any homeowner who went through a short sale or foreclosure sale during the year 2014 originally expected that any mortgage debt forgiven by the lender would be a taxable event. Homeowners who still owed $100,000.00 in mortgage debt after a short sale or foreclosure sale in 2014 would be liable for income tax of about $28,000.00.

This is welcome relief especially for many homeowners in New York City where mortgage debt easily exceeds $500,000.00 stemming from the period of easy credit to purchase real property with little to no money down. It is unknown whether Congress will grant an extension of the Relief Act through the end of 2015 or even on a more permanent basis.