In the coming weeks, amidst the media noise about the “fiscal cliff”, duplex owners who are either struggling to pay their mortgage or behind on payments need to listen closely for one piece of news: has the Mortgage Deft Forgiveness Debt Relief Act been extended another year?
The act, which was passed in 2007, prevented distressed duplex owners who occupied their property from paying some taxes on the amount of debt forgiven on a short sale, loan modification or principal reduction. It is set to expire at the end of this year.
Without an extension, these struggling duplex owners may be required to pay income tax on the amount of their loan that was forgiven.
It’s important to note that duplex investors who never occupied their properties, may or may not face tax consequences for debt forvieness. Each case is unique, and largely contingent upon how taxes were filed during ownership of the investment property. Individual investors should consult their tax professional for guidance.
The non-profit group the Center for Responsible Lending, and the Financial Services Roundtable, which includes representatives from the country’s biggest banks are working together to ask Congress to extend the Mortgage Debt Relief Act.
Housing is starting to recover. However, both groups are concerned this fragile rebound will suffer without an extension.