In order to continue to help distressed homeowners in Massachusetts and prevent disruption to an improving housing market, Massachusetts Attorney General Martha Coakley and a coalition of states are urging Congress to extend soon-to-be expired tax relief for distressed homeowners into next year.
The federal Mortgage Forgiveness Tax Relief Act expires on Dec. 31, 2013. According to a letter to Congressional leaders signed by 42 state and territorial attorneys general, this tax relief is critical to the ongoing recovery of the housing market.
“This tax relief is important not only for families impacted by the foreclosure crisis, but also for continued recovery of our housing market in the Commonwealth,” AG Coakley said. “We urge Congress to again extend this critical tax exclusion.”
Under the 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. If the Act is not extended, homeowners will be forced to pay federal taxes on the forgiven mortgage debt.
“We’ve made significant headway and 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,” reads the letter. “But this assistance will be less meaningful if the very homeowners that receive mortgage debt relief are hit with tax bills they cannot afford.”
An extension for 2014 is included in the Mortgage Forgiveness Tax Relief Act (S 1187 and HR 2788), both of which are in committee, but it is uncertain when these bills may be considered.
Last year, AG Coakley joined 41 other attorneys general in successfully persuading Congress to extend these benefits into 2013.