Congress breathed life back into the Mortgage Forgiveness Debt Relief Act of 2007 (MFDRA), extending it through December 31, 2013. After fierce debate, U.S. legislators extended the MFDRA for another year as part of the fiscal cliff deal.
Over a year ago, Arizona bankruptcy and tax relief attorney Lawrence ‘D’ Zolman published an important article on the Hidden IRS Tax Consequences of Home Mortgage Debt Forgiveness. When Mr. Zolfaghari wrote that article, the MFDRA was set to expire at midnight on December 31, 2012, which would have been disastrous for many homeowners struggling with their mortgages. The impact would have been felt on those property owners whose lenders agreed to reduce or cancel principal through a short sale, loan modification, or foreclosure.


As the law now stands, when January 1, 2014, rolls around, cancelled or forgiven mortgage debt will once again be taxed as income.

Fast forward to 2014:

Say, for example, that in 2014 you find yourself in default on your mortgage, unable to make the scheduled payments. If you and your lender agree to a short sale of your property, and the lender forgives the balance you owe on the loan after the short sale is complete, then the amount forgiven is considered taxable income to you at the same rate as your taxable wages. Depending upon the tax bracket you’re in, and the amount forgiven on the loan, you could owe the IRS thousands of dollars. Assume you and your spouse owe $200,000 on your mortgage, the house sells for $150,000 in a 2014 short sale, and the lender forgives the $50,000 difference. You and your spouse will add another $50,000 to your taxable 2014 income.

Tax Relief Through 2013:

Look at the same example, but this time the principal reduction, foreclosure, or short sale on your principal residence takes place in 2013. The MFDRA will provide an exclusion from tax for up to $2 million in eligible debt ($1 million if married filing separately).


The Zolman Law has enlisted the services of a top real estate group serving the Valley – The Keller Williams S4 Team – to assist homeowners who choose to short sale their residential property. The S4 Team is very discrete (there doesn’t have to be a “For Sale” sign placed in your yard). Should you chose this option, you will:

● Get to stay in your home for at least three months;

● Not be burdened with keeping the property in “show” condition;

● Get free assistance in finding another property to move to;

● Receive either federal relocation funds, or “cash for keys” from the buyer after closing.

If you would like more information about short sales and The Keller Williams S4 Team, call the Zolman Law today at (480) 745-1522.
Mortgage Forgiveness Debt Relief Act Extended Through 2013