Homeowner advocates celebrated last month when a key federal foreclosure prevention program was extended, but the time gain has turned borrowers into unwitting gamblers, forced to chance a loan modification at the risk of losing out on a short sale tax break.
The Obama administration’s Home Affordable Modification Program is now open through 2015, meaning homeowners rushing to negotiate a deal by year’s end have more time. What hasn’t been extended is a law that allows homeowners who short sell their home to exclude the forgiven debt _ usually tens of thousands of dollars _ from their income.
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While federal loan modification plans have been extended through 2015, a law that waives taxes on forgiven debt expires Jan. 1, 2014. That means a homeowner who holds out for a loan modification, but is unsuccessful, risks having to short sale their home and owing tens of thousands of dollars in taxes on the forgiven debt.