Most of the country’s attorneys general have joined the voices calling for Congress to act on more than 50 expiring tax provisions.
Specifically, 41 of the states’ top legal officers have sent congressional leaders a letter urging continuation of the Mortgage Forgiveness Tax Relief Act. That law, the state AGs say, is crucial not only to many struggling homeowners in their states, but also to the overall slowly recovering housing market.
Tax breaks for folks who had bad breaks
The Mortgage Forgiveness Tax Relief Act offers tax forgiveness to certain homeowners who have had their home loan terms modified, disposed of the property through a short sale or even lost their houses due to foreclosure. In these cases, the homeowner usually owes taxes on any forgiven debt.
Someone with a $100,000 mortgage who sells his home for $75,000 to avoid foreclosure is supposed to pay taxes on the remaining $25,000. But under the mortgage tax relief provisions, qualifying homeowners wouldn’t face such a tax bill.
Lots of underwater homes
And there are lots of people who might benefit from continuation of the program. Residential property information provider CoreLogic reports that more than 6 million homes nationwide are still underwater, that is, the loan amounts on the homes are more than the properties’ values.
Extended since 2007
The Mortgage Forgiveness Tax Relief Act originally applied to debt forgiven in 2007. As the housing sector continued to lag, Congress renewed the law several times, most recently as part of the American Taxpayer Relief Act of 2012, also known as the “fiscal cliff” tax measure, which extended the tax break through 2013.
It ends (again), however, on Dec. 31.
Stringing along the taxpayer
The mortgage debt relief provision is part of the more than 50 tax laws known as extenders that expire at the end of this year. These are tax laws that technically are temporary. Over the years, they have been reauthorized for a year or two at a time by the House and Senate.
Some years, the tax provisions have expired but have been reinstated retroactively. That’s expected to happen with the current batch of extenders when Congress returns in January. But exactly when is unclear.
Will Congress sock teachers with a higher tax bill?
Other tax measures that disappear when 2014 arrives include the itemized deductions of certain mortgage insurance premiums as interest and state and local sales taxes, as well as the option for educators to write off $250 in out-of-pocket expenses, the tuition and fees above-the-line deduction and a variety of business tax breaks.
AGs urge quick action
In their letter to House and Senate leaders, the 41 attorneys general say that the tax relief is “crucial to both the homeowners struggling to regain their financial footing and to the battered housing market whose recovery is slow and still uncertain.”
The states’ top attorneys also point to their work with homeowners through federal programs to help them stay in their homes.
“We’ve made significant headway and (have) seen real results achieved for our citizens through the National Mortgage Settlement and other programs that forgive or cancel mortgage debts through modifications, waivers of foreclosure deficiencies, or short sales,” the AGs write. “But this assistance will be less meaningful if the very homeowners that receive mortgage debt relief are hit with tax bills they cannot afford.”
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Veteran contributing editor Kay Bell is the author of the book “The Truth About Paying Fewer Taxes” and co-author of the e-book “Future Millionaires’ Guidebook.”