From Florida Realtors: IRS Mortgage Tax Forgiveness Still On Hold

This post from Florida Realtors:

WASHINGTON – May 6, 2014 – The U.S. Congress has extended the Mortgage Debt Forgiveness Relief Act (MDFRA) for the past few years, but a move to extend it through 2014 for sellers who have part of their mortgage debt forgiven in a short sale or foreclosure isn’t assured.

The Act expired on Jan. 1. Without it, the IRS looks at the loan money a bank forgives – money the seller agreed to pay when he or she first got a mortgage – as taxable income, since a bank is essentially “giving” the seller money forgiven on the debt. However, a home seller who was caught in the downward spiral of real estate values never actually saw that money and often doesn’t have enough to pay the taxes on it.

“There are some rays of hope,” says Evan Liddiard, the National Association of Realtors® (NAR) senior policy representative, federal taxation, who still thinks it likely the Act will eventually be extended.

“The Senate Finance Committee approved a measure early last month to extend most of the expired provisions (including mortgage debt relief) retroactive to the beginning of this year and through the end of 2015,” Liddiard says. “And, the Majority Leader is talking about bringing it to the Senate floor next week.”

However, the initiative could hit some political roadblocks. According to Liddiard, Senate Majority Leader Harry Reid will try to limit the number of amendments that can be attached to the bill, and he may have problems doing that.

“In the most optimistic scenario, Reid will get an agreement next week, and the Senate will pass the … bill; then they will (add it to) a research credit extension bill the House will vote on this week,” says Liddiard. “Under this rosy scene, we could see the mortgage debt relief bill signed into law by June.”

But few observers now think the rosy scenario will happen. Liddiard considers its chances 20 percent or less.

“The worst-case scenario is that Reid cannot get agreement and thus does not bring the bill to the floor, so there is no conference before the November election,” Liddiard says. “If the Senate goes Republican in the election, as many now think possible, there might be little incentive for Republicans to want to have a lame duck session, or to do anything in it if there is one. So, it could be January next year before we see the extenders passed – or maybe even never.

“The most likely scenario, of course, lies somewhere in between,” Liddiard adds.

According to CoreLogic, short sales dropped 0.6 percent in January to 4.6 percent of total sales, down from 5.2 percent the previous month. In February, short sales are expected to drop as low as 2.2 percent of all sales, primarily due to expiration of the MDFRA.

© 2014 Florida Realtors®