A tax provision that spares underwater borrowers from being penalized when they agree to a short sale is due to expire at the end of this year.  But two senators want to extend the Mortgage Forgiveness Tax Relief Act through 2015. 

Senators Debbie Stabenow, D-Mich., and Dean Heller, R-Nev., introduced the extension bill Wednesday.

“It is bad enough that so many families are faced with mortgages that now exceed the value of their home. But to add insult to injury, without this bipartisan bill, the IRS would once again require these families to pay hundreds or thousands of dollars in additional income tax when they sell or refinance their home. That’s just wrong,” Sen. Stabenow said.

Congress has provided this tax relief for underwater homeowners since 2008.  If it isn’t extended, more distressed borrowers will choose do go through foreclosure as opposed to a short sale or deed-in-lieu transaction. 

The Hope Now servicer alliance recently reported that 83,400 short sales were completed in the first quarter.

“If Congress does not act this year, then thousands of Nevadans who are underwater in their homes will be forced to pay a tax at a time when what they need is some relief,” Sen. Heller said. “This legislation is a common sense approach that will prevent Nevadans from being taxed on income they never received.”

http://www.nationalmortgagenews.com/dailybriefing/senators-seek-2-year-mortgage-debt-forgiveness-extension-1037051-1.html