Money Talks: Forgive Us Our Debts

In 1990 my husband came home and said, “We’re moving to Baltimore.” We had moved to Northern California three years earlier, purchased a home and were expecting our second child. I looked at him and said, “Are you out of your mind?” Shortly after that announcement, we packed our belongings and put the house up for sale.

Here it is 15 years later and I can still remember how our house lingered on the market for almost a year without even a nibble. The housing market had tanked and we eventually settled with the bank with a short sale, selling the house for less than the mortgage. The bank forgave us the difference in the amount we owed and unfortunately for us it was considered a taxable gain. Talk about adding insult to injury.

The recent downturn in the housing market feels like deja vu to me. But you can thank your lucky stars for the Mortgage Relief Debt Act of 2007. This act allows individuals to exclude any discharges of indebtedness from a principal residence. Someone finally recognized that it makes no sense to kick a person when they are already financially unstable.

Make sure your tax preparer is aware of this new development because the act was signed into law December 14, 2007 and applies to home sales from 2006 to 2010.

The Congress moved quickly on this bill, but how long will it take them to to approve an economic stimulus?

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