Tax Break Expires for Distressed Borrowers
January 2, 2014
To the dismay of housing advocates, industry groups, and U.S. legislators, a tax break for distressed home owners whose mortgages were written down expired on Tuesday.
The 2007 measure exempted borrowers from federal taxes they normally would owe on assistance received from banks, primarily in the form of short sales and forgiven home loan debt. Although the residential property market is in recovery, housing advocates contend that the tax break put in place after the real estate market crashed is still needed.
More than 6 million U.S. homeowners still owe more on their mortgages than the underlying properties are worth, they say, and failure to renew the tax break would only increase their financial burden.
A report by the Congressional Research Service calculates that a middle-income homeowner who is granted a $20,000 reduction in mortgage debt could expect to owe $5,600 in federal taxes without the tax break.
"It makes absolutely no sense," says Sen. Debbie Stabenow, D-Mich. "This is not just about fairness for homeowners. This is about keeping the housing recovery alive."
Other policymakers agree, given the broad bipartisan support for an extension of the law. While Congress went on holiday break without taking action, it could revisit the issue as soon as next week, possibly passing a retroactive extension.
Source: "Mortgage Tax Break Expires Despite Bipartisan Support in Congress," Los Angeles Times (Dec. 31, 2013)
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Updated: January 23, 2020