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As of the date of this article the Mortgage Debt Relief Act of 2007 (“MDRA”) is still set to expire on December 31, 2012. On November 20, 2012, Paul Owens of, reported that Pam Bondi, the Florida Attorney General, as well as 43 other state attorneys general have all urged Congress to extend the MDRA in order to prevent homeowners that have been granted debt forgiveness from their lenders via loan restructuring (i.e. loan modification principal forgiveness) or short sales from incurring debt forgiveness tax. All indications are that, although there is a dispute over how long to actually extend the MDRA, President Obama and both houses of Congress have the necessary support needed to extend the MDRA for some period of time. The delay seems to be caused by the ongoing “fiscal cliff” crisis in Washington, D.C. Some talking heads have indicated that the MDRA, and consequently millions of homeowners, might fall victim to the stalemate in Washington, D.C. On November 7, 2012, in response to a recent inquiry from my office regarding this issue, U.S. Senator Diane Feinstein (D-CA) responded as follows:


Thank you for writing me to express your support for extending the mortgage debt relief provisions included in the Mortgage Forgiveness Debt Relief Act. I appreciate hearing from you and welcome the opportunity to respond.


Please know that like you, I strongly believe the federal government must do more to help distressed homeowners and stabilize the housing market. I supported the Mortgage Forgiveness Debt Relief Act (Public Law 110-142) when it was passed in 2007 because I believed that this tax relief would help the homeowners who had been most impacted by the housing market crash. This legislation allows homeowners to exclude debt that is forgiven through mortgage restructuring or foreclosure from their taxable income.


As you discuss in your letter, this tax relief is currently scheduled to expire at the end of 2012. I understand your concerns that the expiration of this tax relief will come at a time when many homeowners are still struggling with underwater mortgages or facing foreclosure. You may be interested to know that President Obama included the extension of this tax treatment through 2015 as a part his FY2013 budget proposal. Additionally, I have instructed my staff to carefully examine proposals to help struggling homeowners, including the extension of the Mortgage Debt Relief Act. I appreciate hearing of your support for this proposal and will keep your thoughts in mind as I continue to work with my colleagues to stabilize the housing market and provide relief for homeowners impacted by the recession.


Once again, thank you for writing. If you have any additional questions or concerns, please do not hesitate to contact my Washington, D.C. office at (202) 224-3841. Best regards.


Sincerely yours,


Dianne Feinstein

United States Senator


Currently, the MDRA allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure or short sale qualifies for the relief. The MDRA expires at the end of 2012 so debt forgiveness that would otherwise be non-taxable through December 31, 2012, would become taxable starting January 1, 2013.


It is important to note that not all debt forgiveness qualifies for relief under the MDRA. The MDRA is applicable to secured debt that was incurred as a result of improving, building or buying a primary residence and refinanced debt that was incurred as a result of a rate and term refinance or a cash out refinance with the specific purpose of home improvement. There are limitations of the amount of forgiven debt that can be excluded and the MDRA does NOT exclude debt incurred from debt forgiveness on rental properties, second homes, commercial properties, car loans or credit cards. Homeowners should visit the IRS website at,,id=179414,00.html or consult a tax professional to ensure that their situation qualifies under the MDRA.

July 23rd, 2017

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