In the third quarter of 2014, 8.1 million homes in the United States were seriously underwater, according to the real estate research firm RealtyTrac. If you were a homeowner who decided to short-sell your home last year, it’s not all bad news: Congress once again extended the Mortgage Forgiveness Debt Relief Act.
The act made it so qualifying homeowners did not have to pay tax on debt forgiven by a lender. Without the act’s tax shield, that forgiven debt—up to $2 million—is seen as taxable income by the government. For homeowners owing hundreds of thousands of dollars on a loan, that could be a crippling amount of money owed to the IRS.
The act is retroactive, so when Congress finally renewed it in late December, it covered short sales in 2014. Short-selling a home in 2015 is a gamble—if Congress doesn’t renew the act, you’ll have to pay taxes on forgiven debt.