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Mortgage Debt Forgiveness Act Signed into Law

Homeowners who had short sales in 2014 can now breathe a giant sigh of relief, as the Mortgage Debt Forgiveness Act was signed into law by President Barack Obama.

Under the Mortgage Debt Forgiveness Act, any mortgage forgiveness achieved in a short sale is not counted as income for homeowners whom banks allowed to sell their homes for less than the amount of their mortgage.

The Act was due to expire in 2014, but was extended by recent votes in Congress.

The Mortgage Debt Forgiveness Act passed by a wide margin in the House of Representatives three weeks ago and passed 76-16 in the Senate two weeks ago.

But the Act wasn’t made official until President Obama signed it into law, which he did last week.

The extension only applies to short sales conducted in 2014. Any further extension of the short sale tax break would need to be taken into consideration by the newly elected members of Congress when the Congress begins its 2015 session in January.

According to a recent estimate from RealtyTrac, the average short sale has an estimated mortgage forgiveness of $88,456.

And according to a further data provided by RealtyTrac, there have been more than 121,700 short sales through October of this year, with a total mortgage debt forgiveness of nearly $10.8 billion.

RealtyTrac also estimated that the potential taxes on the average short sale to be $22,114, which would have brought the total tax liability to $2.7 billion.

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