In the final hours of voting to avoid the “fiscal cliff” in Washington, lawmakers chose to approve the extension of the Mortgage Forgiveness Debt Relief Act and Debt Cancellation that was originally approved in 2007. 

This is great news for sellers that are still struggling to negotiate with mortgage lenders on modifications or get their short sale approved on their home.  This act protects many sellers from being taxed on the difference of what they owe on the home and the current market value sales price that the home sells for.  Prior to the extension some short sale  homeowners could have faced a scenario where the bank forgives a $50,000 deficiency on their home, but the IRS taxes them on that deficiency.  This could have resulted in homeowners moving into a different tax bracket. 

The IRS web page has not been updated to show the date through 2013, but I imagine it will be soon.  For the details on the act please visit the IRS Mortgage Forgiveness Debt Relief Act and Debt Cancellation page at:

http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation

 

 

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