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In a long expected vote by the House of Representatives, HR 5771 was passed today just after 3 pm ET.  HR 5771 in section 102 provides for the extension of the presently expired Mortgage Debt Forgiveness Act, which expired at the stroke of midnight December 31, 2013.  The law is now extended though December 31, 2014.  Efforts to have the extension for 2 years failed.  Interestingly the bill, introduced just days ago, was given a 10% chance of passage on Monday by Govtrack.US website.

Those who received forgiven debt in a short sale or deed in lieu of foreclosure or other forgiveness of debt on a primary residence in 2014 will now in most cases have no income tax to pay on that gain.

For example, if a mortgage of $250,000 was paid off with only $150,000 from a short sale, that would mean that the borrower would have a gain (income) of $100,000.  If the taxpayer was in the 28% tax bracket, that would mean a $28,000 tax bill on that transaction on the individual's 1040 tax return that needs to be filed for 2014.  Passage of this bill removes that tax bill.

Senator Pete Sessions said in a statement:

WASHINGTON, D.C.  – U.S. Congressman Pete Sessions (R-TX), Chairman of the House Rules Committee, today released the following statement regarding House passage of H.R. 5771, the Tax Increase Prevention Act of 2014:

“Today the House acted to prevent burdensome tax increases on millions of families and businesses across America.  This piece of legislation provides much needed certainty to taxpayers as they prepare to file their 2014 tax returns and eliminates provisions in the tax code that no longer serve a purpose. I applaud the passage of this bill and look forward to continuing to work toward a simple, competitive tax code.”

This is huge for a large number of distressed homeowners that lost their homes to short sales and deed in lieu of foreclosure in 2014.

The Congressional minutes summary shows the following: