A bill to extend a key tax break to tens of thousands of homeowners who sold their homes this year for less than they owed is law again for another year.
A one-year extension of the Mortgage Debt Forgiveness Act was included in the Tax Increase Prevention Act of 2014. President Barack Obama signed the bill into law Friday.
For homeowners who gambled and sold their home this year through a short sale, unsure about the tax ramifications, extension of the tax break is significant, as it is for the housing market in general.
Lets reward all the people for not being able to make their house payments and selling their houses short. Great away to teach financial responsibilities and over extending themselves.
Traditionally, if a lender allows a homeowner to sell a property for less than the amount owed on the mortgage, the homeowner has to report that forgiven debt as taxable income to the IRS.
The Mortgage Debt Forgiveness Act of 2007, which has been extended multiple times, allows taxpayers to exclude that forgiven debt from their annual income calculations.
Without the act, and assuming a 28 percent tax bracket, every $10,000 in forgiven debt would make a homeowner liable for an additional $2,800 in taxes. The “extra” income also could push a taxpayer into a higher tax bracket.