Mortgage Cancellation Tax Relief….may expire at years end

With nearly one third of homeowners upside down on the value of their home there are many who have and many more who will seek options to extricate themselves from their financial crisis.

A few options open to them: Bankruptcy, Deed in Lieu of Foreclosure, Foreclosure and Short Sale. All of these are tools that a homeowner can use to get out of a financial bind that they have either created or the falling economy has done to them. Before choosing any of these paths homeowners should consult with their attorney as each have pros and cons.

All of these choices have tax consequences, extending this tax relief would be of help to those in need.

NAR Issue Brief

Mortgage Cancellation Tax Relief

ISSUE: If Congress does not act by the end of the year, both home sellers and some home owners could face an
additional tax burden in 2013. Already real estate transactions, including loan modifications, short sales and
foreclosures, are in the pipeline and may not be able to close before year-end. If owners are unable to close
these transactions, and if Congress does not act, these owners and sellers will not receive the benefit of tax relief
provisions they have relied on.

Today, if a lender forgives some portion of a homeowner’s mortgage, either as part of a short sale or foreclosure,
or in a loan restructuring that reduces principal, the owner/seller will pay no income tax on the forgiven amount.
That relief expires on December 31, 2012. Those who are unable to close their transactions in this calendar year
face a “phantom income tax” in 2013. Already the pending expiration of this tax relief is discouraging sellers
who may require some debt forgiveness. This uncertainty adds a new financial burden to sellers who are already
in financial trouble.


  • Homeowners shouldn’t be forced to pay tax on money they’ve already lost with cash they never receive and never will receive.
  • More than 20% of current homeowners with a mortgage owe more on their homes than the current fair market value.
  • Transactions not completed by year-end could become taxable in 2013, despite a borrower’s reliance on this tax relief.
  • The housing market, while recovering, is still fragile enough that this tax relief will be needed in 2013 and possibly beyond.


  • Congressional Action Needed:
  • Cosponsor Mortgage Cancellation Tax Relief Legislation
  • Secure its passage well before year-end.

What to Tell your Senator:

  • Cosponsor S. 2250 introduced by Senator Debbie Stabenow (MI)
  • Urge Senate Leadership to act quickly on a tax package that includes this bill.

What to Tell your House Republican Representative:

  • Cosponsor H.R. 4336 introduced by Representative Tom Reed (NY-29) Urge Chairman Camp to act quickly on this bill.
  • Urge House Leadership to schedule a floor vote on this provision before year-end.

What to Tell your House Democratic Representative:

  • Cosponsor H.R. 4202 introduced by Representative Charles B. Rangel (NY-15)
  • Urge Ranking Member Levin to work with Chairman Camp to secure this tax relief well before year-end. NAR Issue Brief Mortgage Cancellation Tax Relief


  • Secured introduction of bills cited above.
  • Worked with Federal Political Coordinators and other Realtors to secure cosponsors for these bills.
  • A Senate Finance Committee package that extends dozens of expired and expiring provisions includes a one-year extension (through 2013) of the mortgage cancellation relief. No bill number is yet available.
  • Communicated with House and Senate leadership to convey the importance of extending this relief well before year-end.

This information was provided by National Association of Realtors

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