U.S. Senator Debbie Stabenow (D-MI), a senior member of the Senate Finance Committee, today praised the Committee’s extension of a provision that will ensure that homeowners working with their banks to reduce their mortgage payments will not be hit with a huge tax bill. In addition, the Committee passed her amendment to provide additional certainty to homeowners who might be eligible for this tax relief. This measure, based on Senator Stabenow’s Mortgage Forgiveness Tax Relief Act introduced earlier this year, was included in the Committee’s tax extenders package. This legislation prevents homeowners from being required to pay additional taxes when they receive mortgage principal forgiveness on their homes or sell their homes in what are commonly called ‘short sales.’ ‘Families across the country, including many in Michigan, are faced with having to pay for mortgages that now exceed the value of their home,’ said Stabenow. ‘This measure will make sure that families who are willing to work with their lenders will not be forced to pay hundreds or even thousands of dollars in additional income tax when they sell or refinance their home.’ Today’s action would extend through 2015 a provision based on legislation originally authored by Senator Stabenow in 2007. It will also add additional protections authored by Senator Stabenow to ensure that homeowners are eligible for relief as long as the agreement to reduce their mortgage debt is in writing before the date the provision expires. Senator Stabenow led the effort last Congress to extend this provision in the Tax Increase Prevention Act, which extended the tax break through 2014. Declining home prices and rising foreclosure rates have forced many families to sell their homes for less than they paid for them, and sometimes for less than the outstanding debt. The IRS previously taxed any loan forgiveness provided to homeowners as ‘income,’ meaning families were paying thousands of dollars in income tax for phantom income that wasn’t actual money the family had earned. While the housing market is beginning to recover, short sales and foreclosures continue. More than one in six American homeowners currently have mortgages that are underwater.
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