The Mortgage Forgiveness Debt Relief Act of 2007 was created to protect homeowners who were foreclosing or short selling on principal residences and who had never refinanced by taking out a home equity line of credit. The Internal Revenue Service states that The Mortgage Debt Relief Act of 2007 allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
The Mortgage Forgiveness Debt Relief Act of 2007 was originally set to expire in December 2009. However, the Act was extended in October 2009 only three months before the act was scheduled to expire. Over the past few months the expiration date of December 31, 2012 has been a looming deadline for strategically defaulting homeowners. Much to the housing industry’s relief an extension of this Act was granted during congressional fiscal cliff negotiations providing tax relief until December 31, 2013.