Congress has plenty of unfinished business to attend to when it reconvenes in the new year. Some of it deals with the lingering damage caused by the Great Recession.
A case in point: the Mortgage Forgiveness Debt Relief Act is set to expire this week. The legislation gave homeowners who owed more on their homes than their homes were worth relief from taxes in cases where their banks provided them with some mortgage relief.
Without the act, the difference between what a homeowner owes on his or her home and what the home sells for in a short sale is considered income for the homeowner, and therefore subject to tax by the Internal Revenue Service.
For example, prior to the act that provided relief, someone with a $100,000 mortgage who sold a home for $80,000 was supposed to pay taxes on the difference — $20,000.
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This wouldn’t be such a pressing problem if the vast majority of the underwater mortgages had been dealt with by now. But that is far from the case. A staggering 6 million homes are still underwater, according to a 2013 third-quarter report by the research company CoreLogic.
That’s down from the 11 million at the peak of the mortgage crisis in 2009. But millions of homeowners still face serious tax burdens that compound the hardship of losing their houses in short sales.
Two bills in the House and one in the Senate call for extension of the tax relief bill. One of the House bills has strong bipartisan support and should be the legislative vehicle on the path forward.
Extending the Mortgage Forgiveness Debt Relief Act for at least two more years should be a priority for lawmakers when they return to Washington, D.C.