As we postulated in an earlier post, the provisions of mortgage debt forgiveness contained in the Mortgage Forgiveness Debt Relief Act of 2007, were extended through January 1, 2014. The extension will exempt from taxation mortgage debt that is forgiven in a loan modification, short sale or foreclosure.
See Section 202 of the American Taxpayer Relief Act of 2012 (H.R. 8 )
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A reader posted an interesting addendum that I thought was worth sharing here. Apparently the Mortgage Forgiveness Debt Relief Act rarely applies to Arizona homeowners. For more information on this issue see the following article:
http://mortgagemediationgroup.com/short-sales/mortgage-debt-forgiveness-act-rarely-applies/#
Yes, no surprise that the mortgage debt forgiveness relief act was extended for another year, but some had been wanting Congress to extend it to “cash out” refinance forgiveness, not just to forgiveness of debt incurred acquiring, constructing, or substantially improving any qualified residence of the taxpayer, but they did not do that.
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In CA we still do not have an extension for state income taxes:
http://dimatteogroup.com/ca-short-sellers-may-not-be-off-the-hook-yet/
How does the Mortgage Forgiveness Debt Relief act work for a refinance of a loan? If I am underwater and refi for less than originally owed will I have tax liability on the difference?