Key Issue to Watch: Debt Cancellation Relief

One of the most helpful laws on the books for underwater home owners is set to expire at the end of this year. At this point, NAR expects to make a strong push to get it extended because the law will likely be needed in the years ahead as lenders continue to make loan modifications for hard-hit home owners.

The law is mortgage cancellation relief and it was first passed in 2007 with NAR taking a prominent role as industry supporter. It relieves home owners who get part of their mortgage loan forgiven from having to pay tax on the forgiven portion of the loan.

Ordinarily, the IRS would count that forgiven loan amount as income. But in light of how hard home owners were hit in the market downturn, it was unrealistic to expect households to pay tax on tens of thousands of dollars on forgiven debt when they lack money to pay their mortgage without a modification.

It’s safe to say many members of Congress want to extend the relief. It has already been extended once, in 2009. And given its strong bipartisan support in both houses, many members can be expected to support extending it further, especially with its need poised to grow.

But in talking with NAR Director of Tax Policy Linda Goold about the issue, the challenge could be in finding a legislative vehicle that can make it through Congress. Goold says trillions of dollars in tax provisions are expiring at the end of this year. Bills for extending expiring tax provisions in the past have tended to be the last pieces of legislation Congress considers before the end of its session, leaving little room for alternative approaches.

What’s more, all of these expiring provisions tend to get considered as a big package. That means mortgage cancellation relief, as popular as it is, could get snagged if this larger tax package gets held up.

In the 6-minute video above, Goold talks about the hurdles facing extension of the popular law.

More about mortgage cancellation relief.

Robert Freedman

Robert Freedman is director of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at

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  1. Judy Holland

    Cancel the loans completely. People need to bring some of their own money to the table. Any loans that does not require some money from the seller should be canceled. We need to make cuts in all programs and this is certainly one of them.
    We need to QUIT giving cell phones to people. Are you people crazy? If they want a cell phone, let them pay for it. The other things are food stamps, medicaid, section 8 housing, and the list goes on and on. Step up to the plate and stop these R.D. loans. I am a realtor and I see this stupid stuff all the time.

  2. Penelope Santiago

    I am hoping the short sale relief get extended I have not wanted to do a short sale but I know it has to be done.