WASHINGTON, D.C. – March 9, 2015 – (RealEstateRama) — Print this Page Share on Facebook Share on Twitter ShareThis The Michigan Association of REALTORS® today endorsed U.S. Senator Debbie Stabenow’s Mortgage Forgiveness Tax Relief Act, which will ensure that homeowners working with their banks to reduce their mortgage payments will not be hit with a huge tax bill. Without this legislation, homeowners will be required to pay additional taxes when they receive mortgage principal forgiveness on their homes or sell their homes in what are commonly called “short sales.”
“It is bad enough that so many families in Michigan are faced with mortgages that now exceed the value of their home,” said Senator Stabenow. “But to add insult to injury, without this bipartisan legislation, families willing to work with their lenders will have to pay hundreds or thousands of dollars in additional income tax when they sell or refinance their home. That’s just wrong.”
“The housing market is rebounding, but returning to the practice of unfairly taxing underwater homeowners would undermine that progress,” said Beth Foley, Past-President of the Michigan REALTORS® Association. “Especially in Michigan, this legislation will help troubled borrowers who are being responsible and working with their lenders to find solutions. Sen. Stabenow’s bill is critical to the nation’s recovering economy and we appreciate her leadership on this issue.”
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 families were paying thousands of dollars in income tax for phantom income that wasn’t actual money the family had earned.
While the housing market is beginning to recover, short sales and foreclosures continue. More than one in six American homeowners currently have mortgages that are underwater. Senator Stabenow led the effort to extend a provision that would protect homeowners from having mortgage relief taxed as income, most recently in the Tax Increase Prevention Act, which extended the tax break through 2014. Her new legislation will extend the current moratorium on taxing mortgage forgiveness through 2016.