A coalition of 41 state attorneys general have sent a letter to congressional leaders urging the extension of a federal tax relief provision for homeowners who either had their mortgage debt canceled or forgiven due to personal financial hardship or declining in housing values.
Under the Mortgage Debt Relief Act, which took effect in 2007 and is set to expire on Dec. 31, mortgage debt on a primary residence that is forgiven after a foreclosure, short sale or loan modification based on proof of financial hardship may be excluded from the homeowner's calculation of taxable income. An extension of this provision was included in legislation that recently passed out of the Senate Finance Committee, but has yet to clear the House of Representatives.
‘I urge Congress to extend this critical tax exclusion so that the very families who can least afford it are not stuck with an unexpected tax bill or deterred from participating in this historic settlement,’ says Connecticut Attorney General George Jepsen, who co-authored the attorneys general letter with his Florida counterpart, Pam Bondi. ‘Extension of this tax exclusion is estimated to save taxpayers some $1.3 billion over two years. These mortgage modification and debt relief programs provide real relief to homeowners fighting to keep their homes or trying to get back on their feet.
‘Unless Congress acts,’ Jepsen adds, ‘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.’