Extending Mortgage Debt Forgiveness Could Be Heavy Lift
When Congress returns in January there will be a push to get dozens of tax provisions extended for another year, including one that makes short sales an effective tool.
This tax provision ensures underwater homeowners are not penalized by the tax man if they complete a short sale or benefit from some other form of mortgage debt forgiveness.
Without an extension, any amount of mortgage debt forgiven will be taxed as income. Hope Now servicers completed 67,000 short sales in the third quarter.
The most likely vehicle for passing the tax extension will be the debt ceiling bill which must be passed by Feb. 7 to meet a congressional deadline. House Republican members have indicated they want to reduce some government spending in return for raising the debt ceiling.
Sens. Debbie Stabenow, D-Mich., and Dean Heller, R-Nev., have co-sponsored a bill to extend the Mortgage Forgiveness Debt Tax Relief Act through 2015. But some observers believe the mortgage industry will be lucky to get a one-year extension.
“If Congress does not act, then thousands of Nevadans who are underwater in their homes will be forced to pay a tax at a time when what they need is some relief,” says Heller.
“This legislation is a bipartisan provision which simply extends current policy, and should not be lost among partisan bickering,” he added.