The Mortgage Forgiveness Debt Relief Act (“MFDRA”) prevents homeowners who went through a short sale, foreclosure sale, a principal reduction, or otherwise received a waiver of a mortgage debt regarding their primary residence from being taxed on the amount of mortgage debt cancelled or forgiven. Many homeowners have used the MFDRA in prior years to prevent large tax liabilities.
On December 18, 2015, a bill passed that extended the MFDRA through December 31, 2016. Struggling homeowners who were relieved of mortgage debt in 2015 or receive some relief in 2016 may breathe a sigh of relief as they will now be allowed to utilize the substantial benefits afforded by the MFDRA.
There is no guarantee that the MFDRA will be extended again, so mortgage debt related to a taxpayer’s primary residence that is forgiven after December 31, 2016 may be taxable. This will likely lead to a considerable tax liability.
For more information on the Mortgage Forgiveness Debt Relief Act and Cancellation, visit irs.gov. You should contact a qualified Florida attorney if you have questions regarding how the MFDRA may apply in your case.