The Silicon Valley Association of REALTORS® has received an update from the National Association of REALTORS® regarding Mortgage Cancellation Tax Relief, which is set to expire on December 31, 2013. NAR has been working with Congress since early this year to extend this important real estate tax provision. Without an extension, homeowners who have any amount of a mortgage forgiven by a lender either in a short sale or foreclosure would be subject to paying “phantom income tax” on the amount of the forgiveness at the federal level. To this end NAR has aggressively sought co-sponsors for both Senate and House bills, S. 1187 the “Mortgage Forgiveness Tax Relief Act” and H.R.2994 “Mortgage Forgiveness Tax Relief Act of 2013.”

The U.S. House of Representatives adjourned the first session of the 113th Congress without taking action on H.R. 2994. While Congress will not act before December 31st to extend the Mortgage Debt Forgiveness Act, Congress will most likely address individual tax provisions retroactively in 2014.

There are still many procedural obstacles to overcome, but NAR is confident Congress will move on an extension of Mortgage Cancellation Tax Relief in 2014. As was the case with a previous extension, Congress is expected to retroactively apply Mortgage Cancellation Tax Relief to include transactions between January 1, 2014 and the enactment of the extension.

In the meantime, NAR is asking its members to continue to express the importance of this issue to your Senators and Members of Congress and how it is causing uncertainty in the market. Homeowners shouldn’t be forced to pay tax on money they’ve already lost with cash they never received – and never will receive.

REALTORS® with clients involved in a distressed transaction, such as short sale, should encourage clients to speak with a tax professional for advice on their particular situation.