I CAN’T BELIEVE CONGRESS DID THIS THE WAY THEY DID, BUT THEY DID: EXCLUSION FROM INCOME FOR FORGIVEN MORTGAGE DEBT IS EXTENDED THROUGH END OF 2014
It’s a concept I have touched on in my newsletter, but it’s not an easy one to explain or to absorb: if a debt is forgiven, the amount that is forgiven is generally treated as taxable income. In the past, there has been a provision in the federal tax code that excluded forgiven debt from taxable income when the forgiven debt arose from a mortgage on a borrower’s principal residence. That exclusion was for a limited period and was allowed to expire at the end of 2013.
Except now, in the 2014 Tax Increase Prevention Act, that was signed into law by President Obama on December 19 (!), the exclusion has been retroactively extended from January 1 through December 31, 2014.
So, if you already had a foreclosure (or a short sale) in 2014, you can now get the benefit of that exclusion. If you have been contemplating a short sale or facing a foreclosure, you can get the benefit of the exclusion if the foreclosure or short sale happens before the end of this year.
Congress might play the same game again next year, but I wouldn’t count on it.
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