Mortgage Forgiveness Debt Relief Act Expires Should it be Extended in 2014?
On December 31, 2013 the Mortgage Cancellation Tax Relief will expire. The National Association of Realtors (NAR) has been working with Congress since early this year to extend this important real estate tax provision.
Underwater homeowners often try to negotiate with their bank so that they can sell their homes for less than they owe in a short sale or have their mortgage balance reduced. But the difference between what the homeowner owes and the lower sales price approved by the bank is considered income for the homeowner and subject to tax by the Internal Revenue Service. Without an extension, homeowners who have any amount of a mortgage forgiven by a lender either in a short sale, foreclosure, or loan modification would be subject to paying “phantom income tax” on the amount of the forgiveness. The exclusion only applies to mortgage debt forgiven on primary residences, not second homes.
For example, someone with a $100,000 mortgage who is allowed to sell their house for $80,000 is supposed to pay taxes on the remaining $20,000.
We’re far out of the woods as far as recovery, do you think the Mortgage Forgiveness Debt Relief Act should be extended?
A number of energy-efficient home improvement tax credits took a tumble. The credit of up to $500 for the installation of qualified insulation, windows, doors and roofs as well as certain water heaters and qualified heating and air conditioning systems evaporated as of December 31, 2013. The credit for solar hot water heaters, solar electric equipment and wind turbines is slated to stick around until 2016.