In a previous blog (click here), we posted about the Mortgage Forgiveness Debt Relief Act (“MFDRA”) and how it had yet to be extended by Congress to cover mortgage debts forgiven in 2014. MFDRA prevents homeowners who went through a short sale, foreclosure sale, a principal reduction, or some other type of waiver of a deficiency regarding their primary residence from being taxed on the amount of mortgage debt cancelled or forgiven.
On December 16, 2014, Congress passed a bill that extended the MFDRA to cover mortgage debt forgiven in 2014. The bill was signed into law on December 19, 2014. Struggling homeowners who were relieved of mortgage debt in 2014 may now breathe a sigh of relief. However, homeowners who qualify for the tax break must have had the debt forgiven in the applicable taxable year.
Congress is expected to debate further extension of the MFDRA as part of a larger tax package in 2015. If the MFDRA is not extended again, mortgage debt related to a taxpayer’s primary residence that is forgiven by a lender in 2015 may be includable in the homeowner’s taxable income.
For more information on the Mortgage Forgiveness Debt Relief Act and Cancellation, visit this IRS link or visit irs.gov.