Tax Relief For Homeowners: Congress Extends the Mortgage Forgiveness Debt Relief Act
As part of the the fiscal cliff bill passed on Jan. 1, 2013, Congress has extended the Mortgage Forgiveness Debt Relief Act.
The Mortgage Forgiveness Debt Relief Act was created in 2007 to provide homeowners a tax exemption when they get mortgage debt forgiven on their primary residence.
Prior to this act of Congress, any debt forgiven by a lender was normally considered income often referred to as debt discharge income and was then taxed by the federal government.
The extension of the MFDR Act ensures that debt forgiven by a lender in a short sale, foreclosure or loan modification of a primary residence is exempt from federal taxes at least until the beginning of 2014 at which time Congress is free to extend the act once again.
There were a lot of people that were concerned as the debate over the fiscal cliff seemed to drag on forever because ending this tax exemption may very well have harmed the real estate industry. The great news for homeowners and realtors is that with the extension of the Act, homeowners across America can continue to seek debt relief through a short sale on their primary residence without any tax liability.