One of the more watched provisions of the fiscal cliff was the Mortgage Forgiveness Debt Relief Act of 2007, which was set to expire on Dec. 31.
The fiscal cliff deal extends it for another year, meaning homeowners who experience a debt reduction through mortgage principal forgiveness or a short sale are exempt from being taxed on the forgiven amount.
“The amount extends up to $2 million of debt forgiven on the homeowner’s principal residence,” Compass Point Research & Trading said. “For homeowner’s to qualify, their debt must have been used to ‘buy, build, or substantially improve’ their principal residence and be secured by that residence. The law, which was passed in 2007 with a 5-year sunset provision, will now be in effect until Jan. 1, 2014.”
Investor · Scottsdale, AZ · Member since 2012 · 172 posts · 34 votes
13y
Yep, we're celebrating here in Phoenix short sale land :) Although, Arizona has some pretty specific exclusions for how non-recourse debt is forgiven, most homeowners do not understand it's implications and were relying on this Act to expunge taxes owed (on forgiven debt). Either way, hopefully it will lead indecisive sellers to once again be motivated to short sale.
