Mortgage Debt Relief Act Extended Again
The Mortgage Debt Relief Act of 2007 basically provided that no income tax would accrue for the debt relief given to a borrower after a foreclosure or a short sale of a mortgage used to purchase a home or to make improvements on a home. The Act expired December 31, 2014.
Legislation was passed this week to extend the Act again, this time until December 31, 2016. In other words, any deficiency as discussed above will not be taxable income to a borrower if the foreclosure or short sale occurs prior to December 31, 2016. Therefore, for both the years 2015 and 2016 the borrower will have the deficiency tax protection.
The Mortgage Debt Tax Relief Act amends the Internal Revenue Code to extend through 2016 the exclusion from gross income of income attributable to the discharge of indebtedness on a principal residence. S.351