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Attorney General Jack Conway has joined a national effort by state and territorial attorneys general to urge Congress to extend tax relief for consumers who’ve had mortgage debt canceled or forgiven because of financial hardship or a decline in housing values.
Attorney General Conway was one of 42 attorneys general to sign a letter to U.S. House and Senate leaders today, urging them to extend the exclusion, which has been in effect since 2007 and will otherwise expire on Dec. 31.
The expiration comes at a time when many homeowners nationwide are benefitting from the national settlement agreement that state attorneys general reached earlier this year the nation’s five largest banks that provides almost $25 billion in debt reduction and other relief to homeowners.
“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 Conway said. “Extension of this tax exclusion is estimated to save taxpayers almost $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 who are fighting to keep their homes or trying to get back on their feet,” Attorney General Conway said. “Unless Congress acts, any debt relief 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.
Connecticut Attorney General George Jepsen and Florida Attorney General Pamela Bondi led this effort on behalf of state attorneys general.