[Update 1: Story updated with more recent data from RealtyTrac]
Homeowners who had short sales in 2014 are now one giant step closer to receiving tax relief on any money they received as the result of the sale of their home, after the Senate passed the Mortgage Debt Forgiveness Act by a wide margin on Tuesday.
In a vote late Tuesday, the Senate passed an extension of the Mortgage Debt Forgiveness Act by a vote of 76-16. The extension applies to any short sale conducted in 2014.
The Mortgage Debt Forgiveness Act also passed by a wide margin in the House of Representatives two weeks ago. In the House, the short sale tax break passed by a 378-46 margin.
If Congress had failed to act on the renewal of the tax breaks, any mortgage forgiveness achieved in a short sale would have been counted as income for homeowners whom banks allowed to sell their homes for less than the amount of their mortgage.
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.
The National Association of Realtors celebrated the vote.
“NAR applauds Congressional leaders in both chambers for their effort to pass this legislation before adjournment,” NAR President Chris Polychron said.
“Realtors strongly supported the bipartisan Mortgage Forgiveness Tax Relief Act, which was included in the package to prevent underwater borrowers from paying taxes on any mortgage debt forgiven or cancelled by a lender in a workout or after their home was sold for less money than was owed,” Polychron added.
“We are grateful to Sens. Debbie Stabenow, D-Mich., and Dean Heller, R-Nev., and Reps. Tom Reed, R-N.Y., and Charlie Rangel, D-N.Y., for championing the provision.”
The Mortgage Debt Forgiveness Act now heads to President Obama, who is expected to sign the bill into law.
But the extension only applies to short sales conducted in 2014. Any further extension of the short sale tax break will have to be taken up by the newly elected members of Congress when the Congress begins its 2015 session in January.