The U.S. Government has just announced that a Bill just passed that will allow for the extension of the Mortgage Debt Relief Act of 2007 for an additional two years of protection covering tax years 2015 and 2016. This tax relief applies to qualified borrowers when a lender cancels, forgives and or reduces the mortgage debt on their primary residence through various loss mitigation methods such as a loan modification, and debt forgiven in connection with a foreclosure or a short sale.
Normally when this happens, you may have to report the cancelled or forgiven amount as income to the IRS for tax purposes because your legal obligation to pay back your lender was forgiven. However under this law, many struggling homeowners will now be able to exclude income on their taxes from the discharge or reduction of their mortgage debt. (more…)