Mortgage Debt Relief Act, about to expire, excludes taxable income calculation for homeowners in hardship who receive mortgage debt forgiveness
(DES MOINES, Iowa) Attorney General Tom Miller is calling on Congress to extend soon-to-be expired tax relief for distressed homeowners into next year.
On Thursday, Miller and 41 state attorneys general sent a letter to Congressional leaders asking them to extend the tax relief.
“Without this tax relief for homeowners who really need it, families barely making ends meet will face tax bills they can’t afford,” Miller said. “Congress needs to extend it to help ensure that these families stay in their homes and the housing market recovery stays on track.”
Under the federal Mortgage Debt Relief Act, in effect since 2007, mortgage debt that is forgiven after a foreclosure, short sale, or loan modification provided to a homeowner in financial hardship may be excluded from a taxpayer’s calculation of taxable income. The exclusion only applies to mortgage debt forgiven on primary residences, not second homes.
Last year, after Miller and state attorneys general launched a similar effort, Congress extended the exclusion through the end of this year.
An extension for 2014 is included in the Mortgage Forgiveness Tax Relief Act, both of which are in committees. The current Ryan-Murray budget proposal does not include the exemption provision.
The expiration comes at a time when the housing market, while still fragile, has shown signs of gradual improvement over the last year. Data shows that home prices have increased this year, and the S&P/Case-Shiller home price index reported gains of 12 percent or more. CoreLogic has also estimated that 2.5 million more families have had their homes returned to positive equity in the second quarter of 2013.
“State attorneys general have worked hard, across party lines, to provide real relief to homeowners who are fighting to keep their homes and are trying to get back on their feet,” Miller said. “The National Mortgage Settlement we put together has opened the door for home loan modifications and principal reductions that have made a huge difference.”
“Now Congress needs to do its part by again extending this critical tax exclusion,” Miller added. “Without it, any debt relief that would be available in 2014 under various mortgage debt relief programs, will likely be considered taxable income and further hinder the economic recovery of those who need it most.”