A bipartisan bill introduced in the U.S. Senate last week would free homeowners from having to pay taxes on forgiven loan debt.
The bipartisan Mortgage Forgiveness Debt Relief Act, S.122, was introduced by Sens. Dean Heller (R-NV), Debbie Stabenow (D-MI), Johnny Isakson (R-GA), and Bob Menendez (D-NJ).
Heller said the bill would provide relief for homeowners still feeling the effects of the housing crisis.
“Declining home prices and rising foreclosure rates have forced many in Nevada to sell their homes for less than they paid for them, and often times, for less than their outstanding debt. With more than one in six homeowners in Nevada currently underwater on their home mortgage, relief is needed immediately,” said Heller.
“This legislation ensures those who have received financial relief for their mortgage will not be forced to pay a tax on income they never received.”
The bill is designed to protect homeowners from additional loss following a foreclosure, short sale, or a loan modification that results in debt forgiveness, said Isakson.
“Debt forgiveness of this nature is not real income, and failure to extend this legislation when the nation’s economy has yet to make a full recovery would be unfair to those families who have worked to hold on to their homes,” Isakson said.
Stabenow added, “Homeowners who are willing to work with their lenders shouldn’t have to pay hundreds or even thousands of dollars in additional income tax.”
Menendez said families should not be hit with an unexpected tax bill because of a short sale or loan modification. “This legislation would extend mortgage debt tax relief, removing a barrier in the way of families trying to stay in their homes. I look forward to working with my Senate colleagues to protect New Jersey homeowners.”