The Mortgage Debt Relief Act is one step closer to being extended. As of April 7th, the bill was officially approved by the U.S. Senate and is now in the hands of the House of Representatives. Many homeowners with an upside-down mortgage have been holding their breath awaiting news on whether the act will be renewed for 2014. With great reason. Without this act, any amount forgiven from the remaining mortgage balance is considered income when filing taxes.
In other words, if a homeowner owes $250,000 on a home and the bank allows the homeowner to sell the home through a short sale at a price of $150,000, the difference is considered the forgiven amount. Without the Mortgage Debt Relief Act, the homeowner’s income for that year will reflect an additional $100,000. This also includes mortgage debts forgiven through loan modifications and a deed-in-lieu.
One of the chief reasons cited for not renewing the act is that there is a lot of Federal revenue that could be gained from not passing the Mortgage Debt Relief Act. Setting aside the fact that it is morally irresponsible for the government to try to collect money from people experiencing financial hardship, the fact is that it will be very difficult to collect money these individuals.
U.S. Sen. Sherrod Brown is one of the main supporters for the bill, understanding the impact that this act has had on the overall improvement of the economy and real estate market. “With housing markets beginning to recover, we must continue to provide the resources necessary to protect homeowners by extending tax relief to individuals who have gone through mortgage modifications or worked with their bank to sell their homes,” said Brown.
The act isn’t passed yet, but we’re definitely a step closer. We’re glad to see that there is strong support for the Mortgage Debt Relief Act as it was approved by the senate and is now moving to the House of Representatives.