The “fiscal cliff” deal signed by President Obama on January 2, 2013 includes an extension of the Mortgage Debt Forgiveness Act of 2007. Debt forgiven as a result of a short sale or mortgage modification is ordinarily considered taxable income. Short sales made up 22% of all residential sales in the third quarter of 2012. Without such debt forgiveness, the current housing market recovery would be less likely. Homeowners considering a short sale or mortgage modification should be aware that the extension expires January 1, 2014 and there are no guarantees that the Act will be extended again.
The full text of the bill can be found here. The provision of the bill extending debt relief through January 1, 2014 is found under Title II – Individual Tax Extenders. Under that heading, scroll to Section 202 – Extension of Exclusion from Gross Income of Discharge of Qualified Principal Residence Indebtedness.
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