Now that the 2011 tax season has passed most of us won’t think about taxes again for another 9 months. However, a very important tax bill is set to expire this year that could bring some unwanted changes to the already struggling mortgage industry.
Mortgage Debt Forgiveness Act
In 2007, the federal government implemented a program to allow homeowners whose mortgage debts were cancelled relief from tax liabilities associated with the cancelled debt. Prior to this change, anyone who received a waiver or cancellation of mortgage debts as part of a foreclosure, short sale or deed in lieu was required to claim that amount as income on their tax return for the year. Since the act has been in place, many homeowners have been relieved of the responsibility for repaying cancelled mortgage debts, saving thousands in tax debt obligations.
The Mortgage Debt Forgiveness Act is set to expire at the end of 2012, which could mean the end of lender approved short sales or other foreclosure alternatives. There is a big push in Washington to extend the bill in order to keep the momentum going with mortgage debt solutions that help homeowners avoid foreclosure. Industry experts are concerned about a possible increase, yet again, in foreclosures if the bill is not extended before it expires this December.