The Mortgage Forgiveness Debt Relief Act was passed in 2007, and allowed homeowners the protection of forgiving mortgage debt. Mortgage debt includes: principal balance forgiveness, waiver of debt in a short sale, waiver of debt in a deed-in-lieu, any deficiency waiver, as well as charged-off second mortgages. Prior to the passage of the MFDRA, homeowners would have to declare any forgiven debt as 'income', and would be taxed on that 'income.'
MFDRA provided financial relief to homeowners by allowing them to avoid substantial tax liabilities- often, thousands of dollars.
The Mortgage Forgiveness Debt Relief Act expired in 2013, and has yet to be renewed for 2014. If Congress does not renew the MFDRA, many homeowners will have increased tax liability once again. This could severly impact both the economy and homeowners.
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For more on the Mortgage Forgiveness Debt Relief Act and how it could impact you, read the entire story on our Denver tax attorney blog.