Property owners working on short sales or other workout options are ordinarily subject to potential income tax upon the cancellation of debt related to the property, which is classified as income to the property owner/debtor.
Congress this week, however, once again extended for two years the federal legislation known as the Mortgage Forgiveness Debt Relief Act of 2007, which excludes as income, the cancellation of debt on a primary residence . The extension legislation is cleverly named the Mortgage Forgiveness Debt Relief Act of 2015.
President Obama is expected to sign this bill into legislation, which means that debt forgiven which is secured by a primary residence will not be treated as taxable income.
This extension by Congress is a huge benefit to struggling homeowners and should encourage many who owe more than their houses are worth and who cannot afford their homes to consider speaking to an attorney about a short sale or other workout option.