June 15th, 2014 10:49 AM by Sam Kader
The act was enacted in 2007 that allows qualified owners who receive debt cancellations from lenders through short sales, foreclosures and loan modifications to be exempt from the federal tax code's standard requirements. Any amount of debt that is forgiven by a creditor generally is treated as ordinary income to the borrower taxable at regular rates. The act expired on December 31 2013 and with the expiration of the debt-forgiveness stature - owners who do short sales this year cannot be certain that they will avoid taxation of their forgiven mortgage debt. If Congress fails to renew it retroactively to Jan. 1st, there is a real possibility that short sellers in mort parts of the country will face hefty income-tax hits in 2015. Short sales have plunged from 11% to 4% this spring with some potential short sellers opting for chapter 7 bankruptcy instead. The current bill is in the Senate Finance Committee as part of a larger extenders package of tax benefits for a variety of special interests from wind energy to research and development credits. The Senate Majority Leader refused to allow an amendment that would have killed a controversial 2.3% excise tax on medical devices that provides a funding source for the Affordable Care Act. There is no scheduled date for consideration of mortgage forgiveness. However, Congress may retroactively extend the debt-forgiveness law late this summer or even next spring. But don't hold your breath!