Mortgage Forgiveness Debt Relief Act Extended for 2017

Posted on 10. Feb, 2018 by ctlms in My Blog, Real Estate, Short Sale

The IRS tax exemption that many homeowners used to avoid takes from a short sale or other mortgage debt forgiveness has been retroactively extended to cover 2017.

This exemption was originally signed into law in 2007 and has expired and been extended a few times over the past several years. The last few times it was extended, it was near the end of the year after it had expired.  In those instances, it was made retroactive to cover the current year and was signed into law in Dec of that year.  The last time it was extended was in Dec 2015 and covered 2015 and 2016.

In 2017 the law was not extended at any time during the year and Jan 1 2018 came without any extension being signed into law.  On Feb 9 2018, as part of the bill signed into law to end the 2nd Government shut down of the year, this tax exemption law was extended to retroactively cover 2017.  It still does not cover 2018.

So what does this mean?

Any homeowner who had debt forgiven from a "Purchase Money Mortgage" on their "Primary Residence" in 2017 can use this exemption to completely avoid any of that debt forgiveness from being added to their ordinary income and taxed.  This exemption does not cover all mortgage debt forgiveness though.  If the property was not your primary residence for 2 of the last 5 years or the mortgage debt was a cash out refinance, you would not qualify.  But still, many more homeowners will benefit from this extension.

More about this exemption can be found at this link to the IRS website. https://www.irs.gov/newsroom/home-foreclosure-and-debt-cancellation

Link to Bill https://www.congress.gov/bill/115th-congress/house-bill/1892/text#toc-H418A9EDBCCA64DE7B5B9827C4973A1EA

Sean Wilder

Loss Mit Services

10 Responses to “Mortgage Forgiveness Debt Relief Act Extended for 2017”

  1. GMK 18 February 2018 at 1:42 am #

    In the Forbes article I just read about the 2018 budget, which was already signed into law by the President, they simply scratched out January 1, 2017 with January 1, 2018 to effectively extend this. But the IRS has not made any changes on their end yet. I'm sitting here waiting patiently.

    If you do a short sale or are in a foreclosure in 2018, I think you'll be out of luck - I don't see this going on year after year, unless they just make it permanent.

    • ctlms 18 February 2018 at 1:49 pm #

      It is getting less and less likely that it keeps getting renewed. The last 3 times it was extended, it was done after it had already expired. So this year it might not get extended again. We just never know and that part is very frustrating. It leaves a lot of uncertainty for people with enough stress already.

      • GMK 21 February 2018 at 1:30 am #

        No news from the IRS yet so my tax return is still in limbo.

  2. Vincent 17 February 2018 at 9:58 pm #

    Your blog is the ONLY place I've found this mentioned. Your IRS link doesn't have the updated information, but I did find it in the bill that was passed. Link here: https://www.congress.gov/bill/115th-congress/house-bill/1892/text#toc-H418A9EDBCCA64DE7B5B9827C4973A1EA Very relieved, that was going to be a massive and unexpected tax bill. Now to wait for the IRS to update their forms.

    • ctlms 18 February 2018 at 1:50 pm #

      Yes, Congress made the IRS's job very difficult when they extended this after tax season had already started.

  3. JIM KEELY 17 February 2018 at 5:50 am #

    Was this really extended to 2017 because I did a google search and I don't see anything else that backs you up.

    Thanks

    • ctlms 17 February 2018 at 11:59 am #

      Jim, I have yet to see any articles written about it. But if you read the text of the bill, it changed the expiration date of the prior law from Jan 1. 2017 to Jan 1, 2018. So it now covers 2017 retroactively.

  4. Ed Cox 10 February 2018 at 9:00 am #

    Thank you for the news. My client will be very pleased.

    • Debi 17 February 2018 at 3:58 pm #

      I’m assuming any incentive given from the bank before turnover will also not be subject to tax?

      • ctlms 18 February 2018 at 1:52 pm #

        I would suggest confirming that one with a tax professional. But I believe that any incentive allowed to the seller by the bank, just adds to the deficiency balance which is forgiven and reported on the 1099C.


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