Last week, the United States Senate passed an extension of the Mortgage Debt Forgiveness Act. Without the Act, any home mortgage forgiveness that results from a short sale would have counted as income for homeowners. In other words, homeowners that had short sales in 2014 will not have to pay taxes on the mortgage debt forgiven in the short sale.
RealtyTrac estimated that the average short sale has mortgage forgiveness of $88,456, and the total amount of mortgage debt forgiveness has reached approximately $10.8 billion this year. While short sales are declining, RealtyTrac noted that there have been more than 121,700 short sales through October of this year.
The extension, which is retroactive, applies to any short sale conducted in 2014. The House of Representatives also passed the Act by a wide margin with support coming from both parties. The extension goes to President Obama for his signature. The Act will come up again for another possible extension in 2015.