I am not sure why, but there isnt much talk yet about extending the Mortgage Forgiveness Debt Relief Act into 2014 2015.

Before you (yawn) and figure this topic doesnt impact you, you might want to reconsider your position.

In fact, this issue will have a significant impact on home values for the next five to ten years. so you might want to take the time to speak your mind.

NOTE: This Article Will Be Periodically Updated As Events in Washington Unfold. Please scroll to the bottom and find the dated updates through 12/31/2014.

The Mortgage Forgiveness Debt Relief Act Extension And Debt Cancellation

Only our government could create a program with this long of a name, but in its defense, the Mortgage Forgiveness Debt Relief Act has been a major contributor to the housing market recovery that is ongoing throughout most of the United States.

If you borrow money and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C. Cancellation of Debt. The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

Originally scheduled to end in 2012, it was extended another year to cover 2013 as well.

But not 2014.

Not unless Congress decides to extend it again.

Consider this your cue to get involved.

Why The Mortgage Debt Relief Act Needs To Be Extended

There are millions of people in the US who owe more on their homes than they are worth. And we know many of them would like to sell their homes, but they are trapped again. Many will want to do a short sale .

If these upside-down homeowners were to sell a home today (meaning go to contract today but close after the turn of the year), they would incur an income tax penalty for any debt relief they obtained through a short sale.

To determine how many people might find themselves in this position, we can take a look at information gathered and prepared by the National Association of Home Builders regarding the length of home ownership in the United States.

The table above shows that roughly 30% of single family homeowners move within the first 6 years of home-ownership, while 50% move within the first 15 years. That means people who paid a premium for their homes during the housing bubble (2004 to 2007) will be hitting the market in mass from 2010 to 2022. Basically, this means were are really only 3 years into the recovery for these upside-down homeowners.

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