Push to Renew Mortgage Debt Forgiveness Gains Steam in Senate

When the real estate market here in the Silicon Valley first tanked in 2008 through about 2012 or so a large percentage of my business was short sales and bank owned properties (REO). It wasn't a hot seller's market like it is now and there were more than a few home owners who were under water (behind on their mortgage and/or owe more than the home is worth). It was the business back then and I had to adapt like many Realtors did. These short sales were made possible, in part, because of the Mortgage Forgiveness Tax Relief Act. Basically, a simple explanation for what the this act is was legislation passed by congress that made it so the home owner who has his/her mortgage debt forgiven by the bank, usually during a short sale, they would have No tax liability on the money that was forgiven - because forgiven debt is taxable. 

When the Mortgage Forgiveness Tax Relief Act was passed, congress put a "sunset period" on the legislation whereby the legislation would expire if not renewed by congress. The act has been extended a few times, but now with the housing market being relatively good right now (at least for sellers), two senators are working to renew the act - hopefully before it expires, and before the market goes south.



Push to Renew Mortgage Debt Forgiveness Gains Steam in Senate
by Sam Silverstein on February 23, 2015

An effort is under way in the Senate to renew legislation that spares underwater homeowners from having to pay income tax on mortgage debt forgiven by a lender, one of the chief supporters of the tax-relief provision told a group of politically active REALTORS® during NAR’s Federal Policy Conference in Washington.

Speaking on Feb. 5, Sen. Dean Heller (R-Nev.) said he is working with Sen. Debbie Stabenow (D-Mich.) to again extend a provision that Congress renewed for 2014, which lapsed on December 31. The Heller legislation, the Mortgage Forgiveness Tax Relief Act, would exempt forgiven mortgage debt from taxation through the end of 2016.

Heller and Stabenow are both members of the tax-writing Senate Finance Committee. Heller is also chairman of the Senate Banking, Housing and Urban Affairs Committee’s Subcommittee on Economic Policy.

Although he didn’t give a timetable for when the Senate might move forward on the measure, Heller indicated that he considers passing such a bill a priority and would like to see it happen quickly. He said that as a lawmaker from Nevada—which was particularly hard-hit by the housing downturn several years ago and has yet to fully recover—he especially aware of the severe impact falling home prices can have on home owners.

“I can’t make sense of anyone having to pay tax on income they never see,” Heller said.

Heller also said he thinks a deal on broader changes to the tax code is “within our reach,” although Hill staffers who spoke at the conference indicated that fundamental divisions over the issue between Republican lawmakers and President Obama will make achieving progress hard, particularly if the sides do not find common ground by late 2015.

One way the government could move ahead on tax reform is to reach an agreement on how to modify taxes on corporations, which Republicans on Capitol Hill and Obama agree should be a priority. The White House and Congress are further apart when it comes to the way the tax code treats individuals, because Obama has proposed raising taxes on the highest earners—a non-starter for Republicans, analysts say.

A key concern for some lawmakers, however, is that tinkering with corporate taxes without also providing relief to individuals would be unfair to small business owners such as real estate professionals, who often operate their businesses as limited liability companies (LLCs) or S corporations, meaning that income they generate passes through to their owners, who pay tax on it at their individual rate.

Source: National Association of Realtors, Sam Silverstein, Feb 23 2015
Push to Renew Mortgage Debt Forgiveness Gains Steam in Senate