Extension Set to Expire in December, Forcing Illinois Homeowners to Pay Taxes on Any Mortgage Relief Received
Chicago, IL – November 20, 2012 – (RealEstateRama) — Attorney General Lisa Madigan today joined 41 of her counterparts in calling on Congress to extend tax relief for homeowners who have mortgage debt canceled or forgiven because of financial hardship or declining home values.
Under the federal Mortgage Debt Relief Act, in effect since 2007, a distressed homeowner’s mortgage debt that is forgiven after a foreclosure, a short sale or through a loan modification can be excluded from a taxpayer’s calculation of taxable income. The exclusion, which only applies to mortgage debt forgiven on primary residences, is set to expire on Dec. 31.
In a letter to U.S. House and Senate leaders, the Attorneys General asked to extend the exclusion for distressed homeowners. The letter noted that allowing the exclusion to expire would cause homeowners who receive relief under the $25 billion national foreclosure settlement, as well as other mortgage debt relief programs, to face up to $1.3 billion in tax increases, according to the Congressional Budget Office.
“Failure to extend this tax relief would hurt the very families we set out to help in the national foreclosure settlement,” Madigan said. “We need to do everything we can to encourage—not deter—struggling homeowners to seek help to stay in their homes.”
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.