Today Congress passed, and President Obama is expected to sign, a year-end omnibus budget bill that included over $1 trillion and new spending as well as over $600 billion in tax cuts. Included in those tax cuts was an extension of a tax-break for homeowners relieving them of paying income tax on the difference between what they owe on the mortgage and the amount raised in a short sale – especially if the lender reduces the owed principal amount. The tax break expired at the end of 2014 and was reauthorized today and made retroactive for all of 2015 and covers all of 2016. The forgiven mortgage debt exemption is expected to save homeowners in this situation over $3 billion for tax year 2015 alone.
The provision was originally signed into law by President GW Bush as part of the Mortgage Debt Forgiveness Act of 2007. It was supposed to run through 2009 but has been extended several times. This is an important issue that National REIA has been championing and would like to see made into permanent law.
“At least knowing that it is in place next year allows for that stability, which will increase reinvestment for communities,” said Charles Tassell, chief operating officer of the National Real Estate Investors Association (REIA). Tassell said the uncertainty around one-year extensions has made short-sales a less attractive option for struggling homeowners, and National REIA wants to see the waiver extended permanently. “The fact that the Congress has to keep coming back to tell the IRS that forgiving somebody’s mortgage does not equal income is amazing to me,” Tassell said. (as reported by the Scotsman Guide)
Congress extends relief to sellers in short sales, Scotsman Guide 12/18/15
Congress OKs year-end budget deal, sends to Obama, 12/18/15 AP
National REIA’s HousingWire Editorial on Short Sale Tax Treatment