Will the Mortgage Debt Relief Act be extended for 2014?
Yes. I wasn’t given permission to share my sources for this information. However, all indications are that congress has the continuation of the Mortgage Debt Relief Act on the table and it appears they will pass the extension before the end of this year.
Will it be extended by the end of 2013 or early 2014?
We are confident it will be extended. Marginally confident it will actually happen in 2013. If not expect the extension to happen in early 2014 with the Mortgage Debt Relief being made retroactive.
Expect updates as we get them.
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Quick Mortgage Debt Relief Act Review:
The Mortgage Forgiveness Debt Relief Act was introduced in the United States Congress on September 25, 2007, and signed into law by President George W. Bush on December 20, 2007. This act offers relief to homeowners who would have owed taxes on forgiven mortgage debt after facing foreclosure. Act further extended until January 1, 2014 at section 202 of American Taxpayer Relief Act of 2012.[1]
In the eyes of the Internal Revenue Service (IRS), housing debt that is forgiven or written off is the same as income. If the law expires, forgiven mortgage debt will be taxable. The same applies to foreclosures and to loan modifications in which principal is reduced.
Once the lender writes off the debt, it will report the amount to the IRS. Homeowners should expect to receive Form 1099-C showing the canceled debt amount.
All taxpayers, including those who qualify for the exemption, will get the form in the mail if they had debt canceled. Those who qualify for the exclusion will be required to file Form 982 when they file their taxes. The exemption applies only to debt related to a primary home. Mortgages on vacation and rental properties are not exempt under the act. Homeowners who did cash-out refinances and used the money for any other purpose than fixing up their house could still be on the hook for forgiven debt.
The amount of forgiven mortgage debt allowed to be excluded from income tax is limited to $2 million per year.
Here is the official legislation:
113th CONGRESS
1st Session
IN THE HOUSE OF REPRESENTATIVES
July 23, 2013
Mr. Heck of Nevada introduced the following bill; which was referred to the Committee on Ways and Means
A BILL
To prevent homeowners from being forced to pay taxes on forgiven mortgage loan debt.
1.
Short title
This Act may be cited as the Mortgage Forgiveness Tax Relief Act .
2.
Extension of exclusion from gross income of discharge of qualified principal residence indebtedness
(a)
In general
Subparagraph (E) of section 108(a)(1) of the Internal Revenue Code of 1986 is amended by striking January 1, 2014 and inserting January 1, 2016.
(b)
Effective date
The amendment made by this section shall apply to indebtedness discharged after December 31, 2013.