There is still no extension of the Mortgage Debt Forgiveness Act (MDFA) that expires December 31, 2012.
Now there are two bills pending to extend it.
The MDFA says that if a homeowner’s primary residence is foreclosed or short sold, then the 1099 issued afterward is not taxable. Normally, a homeowner would owe tax on the difference between the mortgage balance and the value of the property.
The Democrats have introduced HR 4202 that proposes a 2 year extension of the MDFA through the end of 2014. Republicans are pushing HR 4336 that suggests a 1 year extension through December 2013. Both bills are stalled in the House Ways and Means Committee.
I think that The MDFA will be extended at the last minute.
It will not be pretty if the MDFA expires. Some homeowners will still avoid tax on the 1099 by claiming insolvency, but few will meet the tough definition of insolvency.
Here is what to do if the MDFA does expire.
(Thanks again to Chris D. for staying on top of this.)