Cancellation of Indebtedness
A lender will, on occasion, forgive some portion of a borrower's debt, which is generally treated as taxable income to the borrower. Some exceptions to this rule are available, but, until recently, when a lender forgave some portion of a mortgage debt (such as in so-called "short sales," foreclosures and "workouts"), the borrower was required to pay tax on the debt forgiven.
NAR 2013 President Gary Thomas sent a letter to Senators Debbie Stabenow (D-MI) and Dean Heller (R-NV) expressing gratitude for introducing S. 1187, “The Mortgage Forgiveness Tax Relief Act.” This bill would extend for two years the current law provision that allows tax relief for homeowners when lenders forgive some portion of mortgage debt they owe, such as in a short sale.
Extending tax relief on debt forgiveness is "a high priority," HUD Secretary Shaun Donovan said.
NAR has prepared a new guide to explain in easy-to-understand language what REALTORS® need to know about the 3.8% tax and health care reform.