Attorney General George Jepsen is leading a national effort by state attorneys general who are urging Congress to extend tax relief for consumers who have mortgage debt canceled or forgiven because of financial hardship or a decline in housing values.
Jepsen co-authored a letter with Florida Attorney General Pamela Bondi, which was signed onto by 40 other attorneys general and sent today to U.S. House and Senate leaders. It asked the leaders to extend the exclusion, which has been in effect since 2007, and which will otherwise expire on Dec. 31, 2012.
The expiration comes at a time when many homeowners nationwide are benefitting from the $25 billion national settlement agreement with the nation’s five largest loan servicing companies, which provides $17 billion in debt reduction and other relief to homeowners. Many other banks across the country also offer mortgage modification and debt relief programs.
“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,” Attorney General Jepsen said. “Extension of this tax exclusion is estimated to save taxpayers some $1.3 billion over two years.”
Under the federal Mortgage Debt Relief Act, in effect since 2007, mortgage debt that is forgiven after a foreclosure or short sale or through a loan modification provided to a homeowner in financial hardship may be excluded from a taxpayer’s calculation of taxable income. This exclusion only applies to mortgage debt forgiven on primary residences, not second homes.
“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,” Jepsen said. “Unless Congress acts, 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.”
An extension is included in the Family and Business Tax Cut Certainty Act of 2012 (S. 3521), which recently passed out of the Senate Finance Committee with bipartisan support.
Attorney General Jepsen is a member of the executive committee of attorneys general who helped to negotiate the $25 billion federal-state settlement agreement with the five largest mortgage loan servicing companies and continue to oversee the banks compliance. The agreement, announced in February, took effect in April.