On December 16, 2014, President Obama signed a bill that extended the Mortgage Forgiveness Debt Relief Act to cover any mortgage debt cancelled through the end of 2014. This is good news for many individuals and families as it will reduce their tax burden for 2014.
As part of short sales and some mortgage modifications, the lender agrees to forgive some of the homeowner’s mortgage debt. Normally, that forgiven debt would be considered “income” for the purposes of federal taxes. The Mortgage Forgiveness Debt Relief Act prevents homeowners who went through a short sale, foreclosure sale or principal reduction from being taxed on the amount of mortgage debt forgiven. The act had previously expired at the end of 2013, but the extension now makes it retroactive through all of 2014.
When preparing your 2014 taxes, you should avoid form tax preparation services and unlicensed tax preparers. Instead, we highly advise you to seek the help of a qualified and licensed Certified Public Accountant (CPA), as the tax relief provided by the extension is not automatic. Make sure to mention to whomever you choose to assist with your taxes that you had mortgage debt forgiven in 2014, and to verify that the forgiven mortgage debt is listed on your tax schedules.
If you have questions about this or other impacts of your short sale or mortgage modification, give us a call. We will be happy to talk you.
Robson & Lopez LLC
The attorneys at Robson & Lopez LLC focus on consumer protections and property law. The post on this page are designed to be educations in nature and not intended to be legal advice. We cannot guarantee that issues written about here apply to your personal situation. If you would like to talk to an attorney about the specifics of your case, call 312-523-2166.