Cancellation of Debt Income

In 2007, shortly before the recent mortgage foreclosure crisis, Congress passed the Mortgage Debt Relief Act, which provided that the cancellation of mortgage debt through a mortgage modification, foreclosure, or short sale (i.e., selling the home for a sales price that is lower than the mortgage balance) was not taxable income. Through a series of extensions, this act was made effective through December 31, 2013. However, Congress was unable to pass an extension to keep the law in effect through 2014. What this means is that,…

…unless Congress passes a retroactive extension, any mortgage debt forgiven starting on January 1, 2014 and thereafter is considered taxable income.
Congress’s failure to extend this law has many practical implications, including in the area of family law. When marriages dissolve, spouses are often not able to afford the marital home, leaving it to be sold at short sale or lost to foreclosure. Because an extension of the Mortgage Debt Relief Act was not passed, there is the very real prospect that individuals who lose their home to foreclosure or sell their home at short sale will be saddled with large federal income tax bills. If you have a Pennsylvania mortgage foreclosure or family law issue, contact one of the experienced attorneys at Trinity Law today at Our attorneys routinely handle Pennsylvania family law and real estate matters in York, Lancaster and surrounding counties.