Mortgage Debt Forgiveness Survives Fiscal Cliff
Roy Oppenheim’s commentary was originally published on Yahoo Homes! and is being republished on South Florida Law Blog with their permission.
In all the fanfare about last night’s last-minute buzzer-beater agreement to avert the fiscal cliff, you may not have realized that a major component to the housing market’s revival actually survived.
Mortgage loan forgiveness is alive and well my friends.
Why this hasn’t garnered more headlines is beyond me, because this is excellent news for homeowners.
If you are trying to renegotiate your mortgage or are looking to engage in a short sale, you can breathe a bit easier.
Buried within the 150-plus pages of the American Taxpayer Relief Act of 2012, otherwise known as the fiscal cliff agreement, was the news that the Mortgage Debt Relief Act of 2007 was extended for another year.
As early as March, I wondered if loan forgiveness would join us in 2013. As the year progressed there were more and more voices joining my call to have loan forgiveness extended, including most of the country’s attorneys general, but even as the clock winded down on 2012 there was little word from Capitol Hill if they would actually heed the call.
Well lo and behold, Congress actually got the message. Had the Mortgage Debt Relief Act been allowed to expire, the benefits of a short sale would have been eviscerated, along with the chance for housing to thrive in 2013.
Here is the bottom line: The majority of homeowners who sell a primary residence via short sale this year will not have to pay any taxes on any forgiven debt. For example, if your underwater home sells for $100,000 less than what you owe on your mortgage, you can not be taxed on that amount.
So relax, toast the new year, put away your holiday decorations, and then proceed with a short sale if you are inclined to do so.
Now this key tax break was only extended for another year, so if you are just thinking about a short sale, I urge you to start the process immediately.
Despite their name, short sales remain a time-consuming process and I don’t expect loan forgiveness to be extended again.
When Dec. 31, 2013, comes around, I believe mortgage debt forgiveness will become a thing of the past.
Real estate attorney Roy Oppenheim left Wall Street for Main Street, founding Oppenheim Law along with his wife in 1989 in Fort Lauderdale, Florida, and is vice president of Weston Title. He is also creator of the South Florida Law Blog, named the best business and technology blog of 2011 by the South Florida Sun-Sentinel.