Debt Relief Act Extended

The final act by the 112th Congress to avoid the fiscal cliff was a significant victory for homeowners. As a part of the legislation that cleared the U.S. House of Representatives late last night, Congress extended the cancellation of the mortgage debt relief provision for one year, through the end of 2013. What does this mean? If a lender forgives some portion of a homeowner’s mortgage in 2013, either as part of a short sale or foreclosure, or in a loan restructuring that reduces principal, the owner/seller will not be required to count that forgiven amount as income for tax purposes. Why is this important? Homeowners shouldn’t be forced to pay a tax on money they’ve already lost with cash they never received – and will never receive.  More than 20% of current homeowners with a mortgage are in a distressed financial situation and owe more on their homes than the current market value. The housing market, while recovering, is still fragile enough that this tax relief is necessary to provide stability in the coming year.