Big changes are happing in 2013. On January 2, 2012, President Obama signed the American Taxpayer Relief Act into law. The law is a partial resolution to the United States fiscal cliff and it has extended several federal tax codes that are beneficial to homebuyers, sellers, builders, and real estate professionals.
One of the revised bills is the Mortgage Forgiveness Debt Relief Act of 2007, which was scheduled to expire at the end of 2012; however, homeowners can look forward to an extension that will run through the end of 2013. The Mortgage Forgiveness Debt Relief Act exempts taxpayers from owing taxes on the difference from a short sale, foreclosure, or a principal reduction on their home. This provision applies to debt forgiven in the years of 2007 through 2012. Homeowners may exclude up to $2 million of forgiven debt from their taxable income, $1 million if married but filing for a separate return. Had the law not been extended, all principal balances written off would be considered ordinary income, which would make more owners opt for bankruptcy and foreclosure.
A new privately funded homeowner outreach program, The National Mortgage Forgiveness Plan (NMFP), provides free information and guidance to help struggling homeowners to avoid public foreclosure. Certified National Mortgage Forgiveness Plan Specialists volunteer their time to assist as many homeowners as possible; all services provided by National Mortgage Forgiveness Plan are always free for every homeowner. The NFMP has helped over 4,000 distressed homeowners to exclude up to $2 million of forgiven debt from their taxable income.