Attorney General Doug Gansler Urges Congress to
Extend Tax Relief for Distressed Homeowners
Exclusion Estimated to Save Homeowners $1.3 Billion Over Two Years
Baltimore, MD ( Nov. 20, 2012) - Attorney General Douglas F. Gansler, joined by 41 other state and territorial attorneys general, today urged Congress to extend tax relief for consumers who have mortgage debt canceled or forgiven because of financial hardship or the decline in their housing values. In a letter sent to the U.S. House and Senate leaders, the Attorney General pressed them to extend the tax relief, which has been in effect since 2007 and is scheduled to expire on December 31, 2012.
"I am urging Congress to extend this homeowner relief so families who are already suffering don't get an unexpected tax bill or become discouraged from participating in the historic National Mortgage Settlement," said Attorney General Gansler. "Extension of this tax exclusion is estimated to save homeowners about $1.3 billion over the next two years. Unless Congress acts, any debt relief provided under the national settlement and other mortgage debt relief programs will likely be considered taxable income."
The expiration comes at a time when thousands of homeowners in Maryland and nationwide are benefitting from the $26 billion national settlement agreement with the nation's five largest loan servicing companies. The settlement provides $17 billion in debt reduction and other relief to homeowners. The customers of many other banks across the country that also offer mortgage modification and debt relief programs would also be distressed financially.
Under the federal Mortgage Debt Relief Act, 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.
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.
Click here to see the letter.