The Mortgage Debt Realief Act of 2007 was a critical law allowing qualified Homeowners to sell their distressed properties and avoid tax consequences due to the discharged debt. The law also allowed for similar relief to Homeowners seekig Loan Modifications. With the early vote at around 2:00 AM on January 1st, by the Senate and the House passing the same bill later the same day, the Mortgage Debt Relief Act will be extended. By a vote of 257-167 the House passed HR 8, the Tax Relief Extension Act. HR 8 is now slated to be signed by the President.
Along with the extension of the Mortgage Debt Relief Act, HR 8 includes extensions for deductions for Mortgage Insurance Premiums, State and Local Taxes. The Mortgage Interest Deduction is unchanged. All of the above are important tax considerations for Homeowners and future Home Buyers.
For REALTORS, the most anticipated portion of the bill was the extension of the Mortgage Debt Relief Act 2007. The Mortgage Debt Relief Act (MDRA) of 2007 allows taxpayers to exclude debt discharged during a loan modification or the sale of a property via a Short Sale. The original MDRA had expired on Dec 31, 2012, leaving many current underwater homeowners selling their property in a difficult situation. The tax ramifications could have forced some of these transactions to opt for a foreclosure to avid potential tax liability. With the current progress seen in the Real Estate Market, the end of the MDRA could have been a major road bump that could have derailed the upward trend in the market.
In conclusion, the extension of the MDRA and the current demand for properties and our low inventory levels, are setting the stage for a very active and healthy Real Estate Market for 2013.