Agreement removes tax consequences for homeowners who receive mortgage debt reductions
(DES MOINES, Iowa) Attorney General Tom Miller expressed gratitude over Congress’s decision to extend tax relief for homeowners who have mortgage debt canceled or forgiven because of financial hardship or a decline in housing values.
The “fiscal cliff” agreement reached this week in Washington extends the Mortgage Forgiveness Debt Relief Act of 2007, which excludes taxation on mortgage debt reduced on primary residences. The provision was set to expire December 31.
“We worked very hard to help millions of homeowners who are in trouble, and I’m happy to hear that the New Year won’t usher in unexpected tax bills to those who can least afford them,” said Miller. “This extension benefits homeowners and families who are fighting to save their homes.”
In November, Miller and 41 attorneys general sent a bipartisan letter to U.S. House and Senate leaders, urging Congress to extend the exclusion.
“State attorneys general from both parties worked together by calling on Congress to extend this tax relief, and Congress did the right thing by keeping the Act in place for now.”
The expiration would have resulted in tax consequences for homeowners in Iowa and nationwide who are benefitting from the $25 billion national settlement agreement with the nation’s five largest loan servicing companies. Many other banks across the country also offer mortgage modification and debt relief programs.
“Now that Congress has extended this exclusion, it will encourage more homeowners to take part in the National Mortgage Settlement and existing homeowner assistance programs,” Miller said. “The Mortgage Forgiveness Debt Relief Act extends tax relief for those homeowners who have mortgage debt forgiven because of financial hardship or a housing value decline.”
Under the federal Mortgage Debt Relief Act, 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.
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).
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