Exclusion estimated to save $1.3 billion over two years
(DES MOINES, Iowa) Attorney General Tom Miller today urged Congress to extend tax relief for consumers who have mortgage debt canceled or forgiven because of financial hardship or a decline in housing values.
In a bipartisan letter Miller and 41 attorneys general sent today to U.S. House and Senate leaders, the attorneys general urged Congress to extend the exclusion, which has been in effect since 2007 and is set to expire December 31.
The expiration comes at a time when many homeowners in Iowa and nationwide are benefiting from the $25 billion national settlement agreement with the nation’s five largest loan servicing companies, which provides direct relief to homeowners. Many other banks across the country also offer mortgage modification and debt relief programs.
“It would be outrageous if Congress sticks unexpected tax bills to the very families who need help the most. If Congress doesn’t extend this exclusion, it would discourage homeowners from taking part in the settlement we designed to help them. That would be a travesty,” said Miller. Miller noted that the Congressional Budget Office estimated that failing to extend the tax exclusion would cost these borrowers, who can least afford a tax hike, $1.3 billion in tax increases over two years.
Under the federal Mortgage Debt Relief Act, in effect since 2007, mortgage debt that is forgiven after a foreclosure or short sale or through a loan modification provided to a homeowner in financial hardship may be excluded from a taxpayer’s calculation of taxable income. This exclusion only applies to mortgage debt forgiven on primary residences, not second homes.
“These mortgage modification and debt relief programs provide real help to homeowners fighting to keep their homes or trying to get back on their feet,” said Miller. “Unless Congress acts, any debt relief to be provided in 2013 under the national mortgage settlement, as well as other mortgage debt relief programs, will likely be considered taxable income. Congress should do the right thing and extend the exclusion.”
An extension is included in the Family and Business Tax Cut Certainty Act of 2012 (S. 3521), which recently passed out of the Senate Finance Committee with bipartisan support.
Miller was the lead state attorney general in the joint state-federal investigation and $25 billion landmark settlement into mortgage servicing practices by the nation’s five biggest mortgage servicers. The servicers include JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Ally Financial (formerly GMAC).
Connecticut Attorney General George Jepsen and Florida Attorney General Pamela Bondi led the effort on behalf of the attorneys general to request Congress to extend the exclusion.
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