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Obama Proposes Extending Tax Waiver on Mortgage Debt Forgiveness until end of 2014 (MFDRA)

Discussion in 'Deed in Lieu of Foreclosure - Do You Need Help to ' started by Movin' On Up, Feb 17, 2012.

  1. Movin' On Up

    Movin' On Up LoanSafe Member

    Obama’s FY2013 budget proposal includes an extension of the Mortgage Forgiveness Debt Relief Act of 2007.

    The Act ensures that homeowners who received principal reductions or other forms of debt forgiveness on their primary residences do not have to pay taxes on the amount forgiven.


    Without the Mortgage Forgiveness Debt Relief Act, debt reduced through mortgage modifications or short sales qualifies as income to the borrower and is taxable. Under the act, up to $2 million in debt elimination can be tax-free.


    In the Treasury’s Green Book, its summary explanation of the administration’s budget proposal, it calls for an extension of the tax break due to “the continued importance of facilitating home mortgage modifications.â€


    The administration is proposing an extension that would apply to any amounts forgiven before January 1, 2015.

    At that point, the government would reassess the market and determine whether another extension is appropriate.

    Obama Proposes Extending Tax Waiver on Mortgage Debt Forgiveness
    :bigsmile:
  2. Denada

    Denada LoanSafe Member

    That's certainly good news, to cover all the new foreclosures expected to be filed later this year, now that the $26B bank settlement has been signed.
  3. TomEason

    TomEason LoanSafe Guide Staff Member

    Movin' On Up

    Thanks for posting this info. However, since Obama's proposal was part of his budget proposal, I would be skeptical on the chances it would be passed, as the entire budget is a joke, having no chance of being passed by Congress.

    IMO, in order to stand a strong chance of passage, it would need to be a standalone bill.
  4. reject

    reject LoanSafe Member

    My gut says it'll be extended, but I'm not sure it makes difference to most of us. I don't think the debt forgiveness is going to be taxable anyhow. For example: Joe buys house for $300K and takes a IO 280K loan. Now house is worth 200K and it forecloses. Debt discharge of $80K (the bank got 200k at the auction). Joe's assets are his house FMV before discharge $200K and some various other assets, cash in bank, lets use 10K. His liabilities are $280K and some credit card debt lets use 17K. So his liabilities exceed his assets before the discharge by $87k. So the way I understand it, none of the discharge would be taxable since it is less than his insolvency.

    Everyone agree?
  5. TomEason

    TomEason LoanSafe Guide Staff Member

    reject

    Thanks for your post. I disagree.

    While the insolvency exemption will be available to some, it won't help others who might be subject to tax liability for COD income.
  6. reject

    reject LoanSafe Member

    I'm just saying the majority of people having a hard time with their home payment probably don't have a lot of assets. What am I missing?
  7. TomEason

    TomEason LoanSafe Guide Staff Member

    What you may be missing is this. You're making a blanket statement that doesn't by any means include all members. And, BTW, there are many folk with other assets who choose to walk and let the lender FC. Strategic defaulters anyone?
  8. reject

    reject LoanSafe Member

    TomEason,

    Okay, that's why I used the word MOST (meaning more than half) and not ALL - I agree people with assets exceeding liabilities have issues and I hope, and my gut says it will, get extended, not because of this silly budget, but because our government (both R & D's) are in the "why pay for anything now when we can put off till tomorrow and make our children pay". We will certainly pay for it by inflating the dollar and 90% of people will never even know it. It's true if you're a strategic defaulter you don't want to accumulate assets in your name. If you're a strategic defaulter, I hope you've thought that through and are willing to pay the taxes or have made other arrangements.

    I was hoping for confirmation on my insolvency calculation because my wager says MOST people defaulting are insolvent.
  9. Movin' On Up

    Movin' On Up LoanSafe Member

    It is looking less likely that an extension will happen...

    Follow Up on Extension of The Mortgage Forgiveness Debt Relief Act of 2007

    By Roger Arnold
    | Feb 23, 2012
    | 4:44 PM EST

    A few days ago I posted that a news agency was reporting that
    President Obama's 2013 fiscal budget proposal included a provision for
    extending The Mortgage Forgiveness Debt Relief Act of 2007 to the end
    of 2015. It is currently scheduled to expire at the end of this year.

    I have reviewed the budget and can find no reference to extending the
    Act. There is a line item for budgeting the costs of extending the
    Act through 2015; but that's all.

    The Act or some other piece of legislation still needs to be passed by Congress and signed by the
    President in order for the provisions to be extended past the end of
    this year. And, I am not aware of any pending or proposed legislation
    concerning an extension.
    Follow Up on Extension of The Mortgage Forgiveness Debt Relief Act of 2007 | Trading Strategies, Financial Commentary, Investment Ideas
  10. Movin' On Up

    Movin' On Up LoanSafe Member

    Alright, it looks like there was a new bill introduced to extend the MFDRA, the Homeowner Tax Fairness Act (H.R. 1399/S.22). The legislation extends the exclusion for the three-year period anticipated by the $25 billion foreclosure settlement agreement.



    Bill extends Mortgage Debt Relief Act of 2007 | HousingWire
    Congressional Bill Would Provide Tax Relief for Mortgage Foreclosure Settlement Beneficiaries
  11. sonickitty

    sonickitty LoanSafe Member

    OMG LOL! I was combing through the budget on the white house web site as well looking for this! There was not one mention of it! What has all this craziness driven us to?! Reading through our national budget - my gosh - is that crazy or what? :) So, all of those news stories about it being in his budget - hard to know what is up with that - if true or even what the deadlines are for the budget to be approved. Saw your subsequent post about the other bill. Was a little confusing at first - and not totally clear that it would extend the existing act or some other version for only certain people.
  12. sonickitty

    sonickitty LoanSafe Member

    OK - looks like there are other bills out there as well to try and extend MDRA. Check this out and a cool website btw:

    Bill S.2250 introduced by Senator Debbie Ann Stabenow D-MI and co-sponsored by 14 additional senators.
    S.2250: Mortgage Forgiveness Tax Relief Act - U.S. Congress - OpenCongress

    Bill Summary & Status - 112th Congress (2011 - 2012) - S.2250 - THOMAS (Library of Congress)

    Looks like there are several other similar bills introduced with same goal:

    Related Bills: H.R.4202, H.R.4250, H.R.4290, H.R.4336, S.3224

    I don't know how long it takes to get to the next step to actually vote on them. They are all referred to the house ways and means committee.
  13. Spiderco

    Spiderco LoanSafe Member

    Can a bankruptcy keep you from paying this tax if it does not get extended?
  14. movingalong

    movingalong LoanSafe Member

    A BK can keep you from paying the tax. Being insolvent also avoids the tax.
  15. cabmac79

    cabmac79 LoanSafe Member

    Any word on the Mortgage Debt Forgiveness?

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