Per Money Watch news; Late last week, the Senate Finance Committee drafted and sent to the full Senate, a package that would extend the mortgage relief provision for an additional year, through Dec. 31, 2013.
The Mortgage Debt Relief Act Congress passed in 2007, will expire at the end of this year. For the past five years, homeowners who conducted a short sale, are in foreclosure or restructured their mortgage and had part of the principal balance forgiven didn’t have to pay any income tax on the forgiven debt.
But starting in 2013, homeowners who short sell their $150,000 home for $120,000 will have to pay taxes on the $30,000 worth of debt that was forgiven, because the federal government considers it income, even though homeowners never actually put any of this “phantom” income in their pockets.
The legislation was initially passed to help homeowners struggling to pay their mortgage when the housing market crisis first began, the market is still far away from recovery and real estate agents and legislators alike have argued that homeowners are still struggling and need relief.
“Homeowners facing a short sale or foreclosure are already in financial distress and are most likely unable to pay additional taxes,” said Moe Veissi, President of the National Association of Realtors, “These individuals have suffered through an economically devastating short sale or foreclosure of their home, and in many instances are unable to pay additional taxes, which only adds to their overall burden.”
The National Association of Realtors, (NAR) is lobbying Congress to extend the tax relief past the 2012 deadline. Several legislators have introduced bills in both the House and Senate that would extend the tax relief.
The Senate Bill introduced by Democratic Senator Debbie Stabenow of Michigan would extend the tax relief through 2013, while a House Bill sponsored by Republican Representative Tom Reed of New York would extend the relief a year and another bill sponsored by Democratic Representative Charles Rangel, also of New York, would extend it two more years.
Though the three bills vary on how long they will continue the tax relief, they are all nearly identical in their goal to keep forgiven debt from a short sale, foreclosure or refinancing untaxed. All three bills have gone to committee. If the House and Senate are unable to come to an agreement, millions of homeowners could potentially wind up paying income tax on their mortgage deficiencies. The Senate was unable to act on the bill before adjourning for its August break and the party conventions.
The Senate reconvenes Sept. 10. Chairman Baucus (D-MT) had hoped to finish this package before the election in order to provide certainty about the extension (or not) of more than 50 provisions. Nonetheless, it is not known if the package also would be considered in the House before the election.
Have a Great Week!
Diane Gallagher is the president of the Lodi Association of Realtors and can be reached at firstname.lastname@example.org