There’s a lot of concern out there about whether the Mortgage Forgiveness Debt Relief Act of 2007 will be extended once again. The Act allows homeowners who have to sell their homes through a short sale to write off taxes associated with the sale. In cases where a lender writes off more than $600 of principal loan value they are required to issue a 1099-C to the borrower. In a short sale, where a lender receives less than what they are owed, the amount of the write off can be substantial and the consequential tax burden created by this 1099-C “income” can bury a borrower that is clearly already in dire financial straits.
The government has instituted many relief programs since the housing crises started, many of which have had little efficacy (remember TARP and Hope For Homeowners to name two) . The Mortgage Forgiveness Debt Relief Act stands out as a program that makes a significant positive impact on the people it is intended to help. We therefore are hopeful the Act will be extended through 2015.