The Current Status on the Debt Relief Act Extension

Debt relief actMany people are asking just what the current status on the Debt Relief Act Extension is. Back in 2007, a bill was passed that would allow some homeowners the ability to have their debts partially forgiven under certain qualifications. In addition, in certain circumstances, the process of foreclosure can be delayed providing homeowners with relief from having to fear that they will quickly or immediately lose their home, and they can potentially hold and sell in a timely manner to relieve their debts without the fear of tax penalties.

The rule change is needed because a tax kicks in when debt is forgiven. This is because under the mortgage relief programs this debt reduction is treated as a gain or as income and is taxed as such. Therefore an individual may have a large income tax payment to make, without the cash to pay the tax liability. The debt relief act extension act would extend the period of time in which tax liabilities for this type of mortgage modification would be forgiven, which would limit the potential future impact of a foreclosure or a homeowner who has a mortgage modification on this type of loan.

Obama signing an actCurrently, Obama is working to sign a debt relief act extension to extend the program into the start of 2015. This should provide homeowners with the ability to sell their homes and get out of immediate trouble with their loan. Obama currently does not feel there is an immediate need to do so early on before the end of the year, so that the economic picture and recovery can be analyzed and debated in a more logical manner. In addition, there is a risk that his political enemies could possibly use it against him in the upcoming election, which is another reason he could delay passing this bill.

The timing of the debt relief act extension also matters due to the impact on the housing market. If he passes the debt relief act extension early in the year, then there will be less pressure on people to sell their homes early before they have to fear that a new tax will set in. If the debt relief act extension is not passed early on, then people may rush to sell their homes before the year ends, which can further depress the price of these homes on the market causing future financial uncertainty.

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