The Mortgage Debt Forgiveness Act of 2007 provided distressed homeowners with the ability to sell their homes via short sale without having to worry about including the amount of the waived balance in their yearly tax calculations. Prior to 2007, short sellers were provided a 1099 for the amount of the waived balance and it was taxed as additional income.
The Mortgage Debt Forgiveness Act of 2007 provided distressed homeowners with an avenue that provided an additional level of comfort and relief from additional financial strains. Since many of these homeowners were already steadily sinking lower and lower into massive financial binds, the extra level of relief was quite welcomed.
The act was initially set to expire at the end of 2012, but was extended for an additional year. Although, many in the real estate community were quite confident that another extension through the end of 2014 was imminent, it didn't happen by the end of 2013. In fact, it still hasn't happened....
On yesterday, the House approved a tax bill that included an extension of the Mortgage Debt Forgiveness Act of 2007 through the end of 2014. The bill is now headed to the Senate where an approval is also expected.
WHAT DOES THIS MEAN???
If this extension passes, then all owner occupant short sellers who closed during 2014 will be granted the tax relief for the deficient balance. The extension will be retroactive and will expire on December 31, 2014. Will another extension be granted??? That just may be wishful thinking at this point, but with short sales making up 10% of all home sales in Las Vegas area and 7.1% of all home sales in the Chicago area, it's not really certain what the future may bring.