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One of the provisions apparently remaining intact in the “fiscal cliff” legislation emerging this week is the extension of the 2007 Mortgage Forgiveness Debt Relief Act, affecting thousands of short sales under way and in the year ahead.
The extension, in effect until Jan. 4, 2014, allows homeowners to avoid taxation on the amount of debt they are forgiven during the short sale process. Prior to the law’s original enactment, any amounts of debt forgiven would be added as taxable gross income for that tax year.
This was known as Cancellation of Debt (COD) Income. The amount could be as high as $2 million on the home seller’s principal residence. Oh, and the debt must have been from either the purchase or improvement of the principal residence of the home seller.
Financing and real estate experts nationwide hailed the extension as a positive step towards the housing recovery. Here in Central PA, homeowners embroiled in the short sale process (and there are many) will likely breathe a sigh of relief – especially in light of all the other tax increases coming this year.
Jeff Geoghan is vice president of marketing and communications for Coldwell Banker Select Professionals and Select Services, based in Lancaster City, with 10 offices in eight Central Pennsylvania counties. Jeff lives in East Petersburg, where he also serves as mayor. Jeff has been actively involved in local government and business and has been used as a source by local, regional and national publications.