Mortgage Forgiveness Tax Relief Act Ensures Mortgage Forgiveness Not Taxed as Income
Washington DC – June 19, 2013 – (RealEstateRama) — U.S. Senators Dean Heller (R-NV) and Debbie Stabenow (D-MI) today introduced the Mortgage Forgiveness Tax Relief Act to ensure that underwater homeowners, those who owe more on their mortgages than their homes are now worth, would not be hit with additional income tax if a portion of their mortgage is forgiven. Without the Stabenow-Heller legislation, homeowners will be required to pay these additional taxes when they refinance or sell their homes in what are commonly called “short sales.”
“If Congress does not act this year, then thousands of Nevadans who are underwater in their homes will be forced to pay a tax at a time when what they need is some relief. This legislation is a common sense approach that will prevent Nevadans from being taxed on income they never received. I look forward to continuing to work with Senator Stabenow to extend this critical tax relief as the Silver State continues to work towards recovery,” said Senator Dean Heller.
“It is bad enough that so many families are faced with mortgages that now exceed the value of their home,” said Senator Stabenow. “But to add insult to injury, without this bipartisan bill, the IRS would once again require these families to pay hundreds or thousands of dollars in additional income tax when they sell or refinance their home. That’s just wrong.”
Declining home prices and rising foreclosure rates have forced many families to sell their homes for less than they paid for them, and sometimes for less than the outstanding debt. The IRS formerly taxed any loan forgiveness provided to homeowners as “income,” meaning underwater families were paying thousands of dollars in income tax for phantom income that wasn’t actual money the family had earned.
Senator Stabenow championed the original legislation that protected homeowners from having mortgage relief taxed as income. However, that legislation expired at the end of 2012. Heller and Stabenow introduced legislation last year that continued this protection for homeowners through the end of 2013. Heller and Stabenow’s new bill will extend the current moratorium on taxing mortgage forgiveness through 2015.
While the housing market is beginning to recover, short sales and foreclosures continue. Approximately one-in-five American homeowners are currently underwater on their mortgages.