As the end of the year approaches, so does the expiration of
the Mortgage Debt Relief Act (MDRA) of 2007. The MDRA removes the capital gains tax penalty that would
normally be imposed on any forgiven debt — the difference between what was
originally owed and what the house sold for — on a primary residence sold in a
short sale.
The act is set to expire on the 31st of December
and should it not be extended, it will likely send the slowly recovering real
estate market – as well as the economy in general – back into a downward
spiral.
By having the act in place, it encourages people to work
with their lenders on short sales, without the fear of being hit with a huge
tax bill. Sure, they still might
be made responsible for a portion of the deficiency; but it will likely be far
less than the tax one would pay on the forgiven debt.
As noted in San Jose Mercury News:
“Housing advocates and lawmakers
are worried that the exemption will disappear just as thousands of homeowners
are receiving large amounts of mortgage debt relief from the nation's five
largest banks as part of a national settlement of foreclosure abuse
investigations. "The
expiration of that provision is a hidden time bomb," said Rep. Jim
McDermott, D-Wash.”
Unfortunately, we’re in the middle of an election year and
with all the other issues taking center stage, the extension of the MDRA is
being pushed to the back burner.
It doesn’t have to be that way.
Reach out to your elected representatives and let them know
how important it is that we extend the MDRA.
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