The Mortgage Forgiveness Tax Relief Act of 2015 is a pending bill in the U.S. Congress as of July 2015. It seeks to extend to 2016 a similar law that expired in 2014, so that forgiven mortgage debt on a principal residence is not classified as taxable income.Continue Reading
Under U.S. tax laws, the IRS normally treats forgiven mortgage debt on a principal residence as part of the homeowner's income, which is then taxed at regular rates. The Mortgage Debt Relief Act of 2007 exempted such homeowners from having to do so. This included debt that was forgiven by lenders through mortgage restructuring, short sale and foreclosure. The original law expired in 2013 but was extended by President Obama until 2014.
However, according to the LA Times, despite a slight recovery in home prices, about 7 million homeowners remain in financial difficulty and owe mortgages that are higher than what their homes are worth in the market. Now that the Mortgage Debt Relief Act has expired, if they are forced to short sell, foreclose or restructure and have mortgage debt forgiven, they face huge tax liabilities .
In order to help these homeowners, Nevada Republican Senator Dean Heller and Michigan Democrat Senator Debbie Stabenow filed this bipartisan bill to have the expired law extended through the end of 2016. As of July 2015, the bill has been referred to the House Committee on Ways and Means.Learn more about Debt Law