This press release came our way and the information is so important we wanted to share it with you:
FOR IMMEDIATE RELEASE FEBRUARY 27, 2015
Contact: Neal Patel (Heller): 202-224-6244; Rachel McCleery (Stabenow): 202-224-4822
SEVERE TAX CONSEQUENCES FOR HOME OWNERS IN FORECLOSURE.
Senators Heller, Stabenow Introduce Legislation to Eliminate Unfair Tax Bills.
Bipartisan Legislation Will Ensure Mortgage Forgiveness Is Not Taxed as Income.
At present Home owners in foreclosure could face an enormous tax bill if they negotiate a reduction of their debt with the lender. There is now hope that will not be the case for 2015 and 2016 Senators Heller and Stabenow have once again introduced legislation to extend the Mortgage Forgiveness Debt Relief Act for another 2 years (covering 2015 and 2016).
According to a recent press release, U.S. Senators Dean Heller (R-NV) and Debbie Stabenow (D-MI) introduced bipartisan legislation to ensure, when homeowners work with their banks to reduce their mortgage payments, those homeowners will not be hit with a huge tax bill. Without this legislation, homeowners will be 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.”
“Unless Congress acts, those who are underwater in their homes and have received financial relief for their mortgage could be forced to pay a tax on income they never received. This makes no sense, and the legislation Senator Stabenow and I introduced ensures it won’t happen,” said Senator Dean Heller. “As a member of the Senate Finance Committee I look forward to finding a vehicle to pass this important legislation.”
“It is bad enough that so many families are faced with mortgages that now exceed the value of their home,” said Senator Stabenow. “But to add insult to injury, without this bipartisan legislation, the IRS would require that families willing to work with their lenders pay hundreds or thousands of dollars in additional income tax when they sell or refinance their home. That’s just wrong.”
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 formerly taxed any loan forgiveness provided to homeowners as “income,” meaning underwater 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 (the rate is 16.9%) American homeowners are currently underwater on their mortgages.
Sens. Stabenow and Heller have worked together several times to extend a provision that would protect homeowners from having mortgage relief taxed as income, most recently in the Tax Increase Prevention Act, which extended the tax break through 2014. Their new legislation will extend the current moratorium on taxing mortgage forgiveness through 2016.