Late-breaking  of the compromise reached between Congressional Republicans and the President over the past couple of days claim that the Mortgage Tax Relief provisions in existing law were extended by the compromise.    Those provisions were set to expire at midnight on December 31, 2012.

 Had the extension not cleared hurdles, many homeowners struggling in foreclosure and loan modification proceedings risked having debt “charged off” by their bank imputed to them as <em>income</em> and taxed accordingly.  The scenario is common when homes are “underwater.” That is, when a home is clearly worth less than the outstanding mortgage(s) against the property.

For example, suppose a homeowner owes $150,000 on a home now valued at $100,000.  Should the bank agree to waive seeking a deficiency judgment for the $50,000 balance (either as part of a short sale, loan modification, or other arrangement) the $50,000 would likely become a tax liability.  In some cases, waivers of a deficiency may still be a taxable event, so it is important to consult a qualified legal or tax professional about the specifics of your situation.

For many  clients of Jeremy Thakurdin & Associates this development is welcome news.   It’s also welcome news for the struggling U.S. Economy.