Debt forgiveness act extended through 2013
As negotiations waged in Washington, D.C. regarding how to avoid the looming “fiscal cliff,” it was unclear until nearly the last minute whether the Administration was going to extend the Mortgage Debt Forgiveness Act of 2007 through 2013.
The statute was enacted in 2007 and means that homeowners who sell their home at a loss — e.g., in a short sale — are not taxed on the amount of their mortgage not repaid (up to $2 million). The statute was set to expire on the last day of 2012 and it was announced in the early days of the new year that it had been extended.
May save underwater sellers $1.3 billion
Short sales were up year over year in the second quarter of 2012 by 12 percent and in the third quarter by 22 percent according to RealtyTrac. The combination of banks not only smoothing the short sale process but also approving more short sales, along with the not inconsiderable financial advantage of not paying taxes on the forgiven debt, proved distinctly appealing to many homeowners with underwater mortgages.
The Congressional Budget Office estimates that extending the Mortgage Debt Forgiveness Act through 2013 could save taxpayers $1.3 billion.