Status of Mortgage Debt Relief Act
Still no news as of this post on the resurrection and extension of the Mortgage Debt Relief Act passed by President Bush in the final days of his administration. A proposed bill cleared the Senate subcommittee on finance several months ago but it has not made progress through the full Senate or House yet. President Obama has stated his support for the act and has even offered to tender his own version. So what is holding up the law?
Apparently, the election cycle can create the paralysis of analysis in DC. Some legislators hold onto bills as long as possible in case they may need them as engines to tow a caboose of additional legislation, a/k/a “pork”. The current administration may also be concerned about losing potential revenue from taxing “phantom income” from forgiven debt in short sales and further increasing the national debt.
One analyst expects that the President will wait until as late in the year as possible:
“Obama currently does not feel there is an immediate need to do so early on before the end of the year, so that the economic picture and recovery can be analyzed and debated in a more logical manner. In addition, there is a risk that his political enemies could possibly use it against him in the upcoming election, which is another reason he could delay passing this bill.
The timing of the debt relief act extension also matters due to the impact on the housing market. If he passes the debt relief act extension early in the year, then there will be less pressure on people to sell their homes early before they have to fear that a new tax will set in. If the debt relief act extension is not passed early on, then people may rush to sell their homes before the year ends, which can further depress the price of these homes on the market causing future financial uncertainty.”
Although the preponderance of opinion is on the Extension of the MDRA before the end of 2014, our office still recommends to our clients to confer with a tax specialist and have a “Plan B” in place to ease the impact of “Phantom Income” in the 2014 income tax return. Give us a call or email if you have questions about safety nets for the failure to re-enact the MDRA and we can give you some talking points to go over with your tax advisor.
This firm DOES NOT RENDER TAX ADVICE. Recipients of this communication may not rely upon any content within this communication deemed by the recipient to constitute tax advice. Recipients are urged to consult with and confirm all tax matters with their own tax advisors.