Congressional inaction turns mortgage relief into tax burden

The House of Representatives adjourned for the year without an extension on the Mortgage Debt Forgiveness Relief Act (MDFRA), a 2007 law that prevents forgiven mortgage debt from being taxed as income. Starting January 1, any mortgage debt forgiven is eligible to be taxed, creating potentially burdensome liabilities for the millions of Americans in stages of mortgage delinquency as they seek relief to prevent foreclosure.

Prior to MDFRA, Americans who received either a reduction in their mortgage principal or debt forgiveness through the sale of their property were required to report those savings as income for purposes of taxes. Six years ago, Congress recognized that with the collapse of the housing bubble, this aspect of the tax code would result in many Americans owing large portions of their annual income to the IRS.