Very generally, the Mortgage Forgiveness Act (technically: The Mortgage Forgiveness Debt Relief Act of 2007) is an act set to run from 2007 through 2012, and relieved homeowners of paying income taxes reduction of debt from either a mortgage restructure, or from a foreclosure / short sale.
This act allows up to $2 million of forgiven debt (or $1 million if married and filing separately) and specifies that the forgiven debt must be due to the home’s declination of value or the financial condition of the taxpayer. A much more in-depth explanation of this act can be found here on the IRS site.
The current issue is whether or not this act will be extended by Congress past 12/31/12. If it is not extended, the taxpayers that sell their homes after 12/31/12 (as short sales or foreclosures) could be required to pay income taxes on the forgiven debt.
Due to the continuing struggles with the economy, both locally and nationally, we strongly urge anyone to show support in extending the act by clicking here. We still have a number of homes that are listed as short sales and/or foreclosures locally that will likely not close prior to 12/31/12. Any support you and your sphere of influence can provide will be beneficial to us all.