Mortgage Forgiveness Debt Relief Act has not been extended

From uncertain short sellers to people in the legal and real estate industries, I get lots of questions about the status of the federal Mortgage Forgiveness Debt Relief Act. Here are two examples:

Q: I saw your question-and-answer article on Jan. 11 (about this issue). Have there been any updates that you are aware of? Any help is appreciated. Thank you.

— Deidra H., Las Vegas

Hi, Heidi. Read your article about mortgage relief act. Just wanted to ask you if you have any update about the mortgage relief act extension. Thanks so much!

— Irma G., Phoenix

A: This is an important issue, especially in Southern Nevada.

As you may know, the federal Mortgage Forgiveness Debt Relief Act of 2007 was allowed to expire Dec. 31. If Congress does not extend this act retroactively, as many hope, I expect to see more foreclosures and fewer short sales this year. That’s because any amount of money a bank writes off in agreeing to sell a home as part of a short sale starting in 2014 may become taxable when sellers file their income taxes.

A short sale occurs when a lender agrees to accept less than what the borrower owes on the mortgage when the borrower sells the home.

In recent years, short sales have been much more common here in Nevada than in other states. According to the Greater Las Vegas Association of Realtors, 17 percent of existing local home sales in January were short sales, down from 20.7 percent in December. Eleven percent of January sales were bank-owned properties, up from 8.5 percent in December.

To help distressed homeowners here and nationwide, the National Association of Realtors and others have been pushing Congress to extend this act, even if they need to make it retroactive to help distressed homeowners who are selling homes via a short sale or similar transaction in 2014. On its website, the association explains its position: “NAR supports an exclusion from taxation of the phantom income generated when all or a portion of a mortgage is forgiven.”

Members of Nevada’s congressional delegation, among other members of Congress, are on record supporting such an extension.

However, as the association points out at www.realtor.org/topics/mortgage-debt-cancellation-relief, it doesn’t look as if this is going to happen anytime soon:

“NAR believes there could be action in the Senate to extend this provision sometime this spring. However, the House has said it does not want to extend temporary tax provisions until it completes work on comprehensive tax reform. Therefore, NAR believes an extension of the mortgage cancellation relief may not be passed until after the November elections.”

This uncertainty is creating stress in Southern Nevada, where homeowners considering a short sale aren’t sure what to do.

Personally, I think people considering a short sale should play it safe. No matter how hopeful we may be that Congress may eventually extend the act, there’s no guarantee.

I’ve had people ask me how a possible short sale may affect them and their tax situation. As much as we may want to help our clients, Realtors should not be giving tax advice.

I strongly encourage people in this situation to consult their accountant to find out what’s best for them and how a short sale and the debt that may or may not be forgiven on their federal income taxes may affect them.

People have to start making choices based on the best information we have at hand today, in case the act is not extended.

I hope that helps. Please send real estate questions to me at ask@glvar.org so I can answer them in future columns.

Heidi Kasama is the 2014 president of the Greater Las Vegas Association of Realtors and has been a local Realtor for more than 11 years. GLVAR has more than 11,000 members. Email questions to ask@glvar.org. For more information, visit www.lasvegasrealtor.com.