Mortgage Forgiveness Debt Relief Act: Tax break for homeowners running out

Impact 5 report

BOYNTON BEACH, Fla. - Finnegan, Bella, and their owner Jennifer Rendfrey are on the move.

"I adore this house. This is actually my first house.  I've been here for 12 years. I put my heart and soul into it. But time to move on," Rendfrey said.

After having already lost her business following a biking accident, Rendfrey is now losing her Boynton Beach home.

"Right now it's going through a short sale. Sale pending."

She and her real estate agent are just waiting for bank approval.

"We're trying to get it closed by the end of the year, so we can get in under the Mortgage Debt Forgiveness Act that expires on December 31st," Bill Richardson, a Realtor with Keyes Real Estate , said.

Richardson is one of a million members of the National Association of Realtors pushing lawmakers on Capitol Hill to get the act extended.

Without it, beginning in 2013 homeowners who go through a foreclosure, short sale, deed-in-lieu, even a principal reduction on their mortgage, can be taxed on whatever amount the bank forgave as income.

"The Senate Banking Finance Committee has already proposed a bill to get it extended," a positive sign real estate attorney Shari Olefson said.

And last month Florida Attorney General Pam Bondi signed a letter along with dozens of other attorneys general urging Congress to get it passed.

So what's the hold up? Why not extend it? Because the U.S. stands to lose billions of dollars.

"That income tax that's not being earned by the U.S. government is a huge cost particularly when we're facing a fiscal cliff. With the deficit issues that we have, it's money that the government could definitely use. The question is, should it be coming from folks who can really least afford it," Olefson said.

Extended this year or not, Olefson said the programs won't last forever.

"A short sale for your next door neighbor is eventually going to translate to higher banking fees for all of us, so they will go away," Olefson said.

Rendfrey just hopes not before her home goes to closing.

"I have to let it go in a short sale," Rendfrey said.

The Act has been around since 2007, and has already been extended twice. Some estimates show extending the Act would cost the Treasury $2.7 billion over two years.
 

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