This is really good news!
Congress has extended the Mortgage Debt Forgiveness Act as part of the
fiscal cliff deal. What does it mean to
you?
Well, really, nothing unless you’re going to sell your home
as a short sale this year. Or, perhaps if you have a neighbor that needs to do
a short sale. What the Act did was to
prevent the homeowner from being taxed on the forgiven debt that was part of
the short sale. Prior to the Act going
into force in 2007, if you were forgiven $20,000 worth of debt on the sale of
your home, the IRS treated it as income and you had to pay taxes on that
amount. Tough to do when you could prove
a hardship and couldn’t make your mortgage payment to begin with!
It was anticipated that without the extension of the Act
there would be no incentive for consumers to go through the stressful and
rigorous short sale process and it would likely result in more ‘walk aways’,
i.e., strategic defaults. Not good for
the homeowner, not good for the neighborhood. It’s always better to have homes
occupied rather than sitting vacant.
As an aside, did you know that ‘fiscal cliff’ was one of
Lake Superior State University’s entries on its annual ‘Banished Words’ list
this year? It sits alongside other terms
like “kick the can down the road,” “boneless wings,” and “bucket list.” See the list here.
And while you’re reading the list, feel good that the
Mortgage Debt Forgiveness Act was extended – even if ‘fiscal cliff’ has been banished.
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