The Senate approved the long time waiting extension of the Mortgage Debt Forgiveness Act , bringing home owners who did a short sale this year one step closer to tax relief. Home being soldThe bill, which passed the House of Representatives two weeks ago, is expected to be signed by President Barack Obama. The Senate approved the bill in a 76-16 vote.

The Mortgage Forgiveness Debt Relief Act of 2007 was created to help distressed homeowners; that were faced with taxes after a Principal reduction; however this law expired Dec. 31, 2013 making distressed home owners responsible for paying taxes on “phantom income” from the forgiven debt. The tax on a 2014 short sale or workout would have been due this coming April 15 had Congress not extended the measure.

The extension will only apply to short sales conducted in 2014. Any further extensions will have to be considered by the new Congress, which begins its 2015 session in January.

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