Struggling homeowners regain tax break in extenders package

Struggling homeowners would get some tax relief under a tax package unveiled late Tuesday evening.

The bill includes a temporary extension of a provision aimed at ensuring homeowners who short sell their homes to escape unmanageable mortgages don’t face hefty bills come tax time.


Under normal tax law, any forgiven debt is treated as income for tax purposes. That means that if a homeowner is able to reduce the principal on a home loan or complete a short sale, they would have to pay taxes on whatever debt was forgiven.

Ensuring homeowners are able to obtain relief from expensive mortgages without facing a significant tax bill had been a top priority for real estate agents and mortgage bankers in previous years.

Congress had previously passed legislation exempting such debt from that requirement, but the provision expired at the end of 2014. The tax package unveiled just before midnight on Tuesday included, among a host of provisions, language that would restore that exemption retroactively back to the beginning of 2015, and keep it active through the end of 2016.

Furthermore, the provision stipulates that as long as a written agreement to forgive the mortgage debt is drafted in 2016, the tax exemption will still apply, even if the actual forgiveness occurs in 2017.