Under the Mortgage Debt Forgiveness Act, any mortgage forgiveness achieved in a short sale is not counted as income for homeowners whom banks allowed to sell their homes for less than the amount of their mortgage. This Mortgage Debt Forgiveness Act, set to expire, has been extended and is applicable to all short sales in 2014. There were approximately 121,700 of them as of October 2014.
Basically this means the dollar amount forgiven by the bank in a short sale isn’t counted as income for the seller. This is a big advantage for the seller.
“NAR applauds Congressional leaders in both chambers for their effort to pass this legislation before adjournment,” NAR President Chris Polychron said.
“Realtors strongly supported the bipartisan Mortgage Forgiveness Tax Relief Act, which was included in the package to prevent underwater borrowers from paying taxes on any mortgage debt forgiven or cancelled by a lender in a workout or after their home was sold for less money than was owed,” Polychron added.
“We are grateful to Sens. Debbie Stabenow, D-Mich., and Dean Heller, R-Nev., and Reps. Tom Reed, R-N.Y., and Charlie Rangel, D-N.Y., for championing the provision.”