Hey! Congress did something good!

Here’s a great piece of news for the holiday season – in a refreshing act of bipartisanship, the Senate approved a measure 76-16 this week to extend the Mortgage Debt Forgiveness Act (MFA) through 2015; with the House having already approved the extension (378-46), all that’s left is President Obama’s signature.

Originally passed in 2007, the MFA excludes forgiven debt in a short sale from taxable income. So, if one of your clients embarks on a short sale and their lender forgives a certain portion of their mortgage debt as a result, the total forgiven debt is NOT taxed by the IRS; before the MFA was passed, such debt was taxable.

Mortgage Debt Forgiveness Act Extended Through 2015

The MFA’s extension is great news in a place like Chicagoland, where 25.3 percent of mortgage holders are still in negative equity and where, unfortunately, short sales are likely to continue with relative regularity.

Additionally, the MFA’s extension counts toward any short sale conducted this year, so consumers do not have to worry about forgiven debt appearing in their taxes next year; Bert Gor, the president of The Short Sale Group, Inc. with RE/MAX Professionals Select and a recurring honoree in Chicago Agent‘s Who’s Who, said that’s a particular benefit to the extension.

“The extension is great news for parties that qualify, but especially good news for homeowners that were forgiven debt under loan modifications this past year,” Gor said. “Some lenders, such as BOA under the Department of Justice settlement, have forgiven significant balances.”

For more information on the MFA, including what it’s extension means for the housing market, check out Gor’s guest-article on our site earlier this year.