Tax aid for underwater homeowners to end
WASHINGTON — Struggling homeowners could be hit with an unexpected tax bill in the new year.
A law that spared people who owe more than their homes are worth from being saddled with extra taxes when their banks provide mortgage relief will expire next week. Congress has not extended it.
Underwater homeowners often try to negotiate with their bank so they can sell their homes for less than they owe in a short sale or get their mortgage balance reduced. But the difference between what the homeowner owes and the lower sales price approved by the bank is considered income for the homeowner and subject to tax by the Internal Revenue Service.
For example, someone with a $100,000 mortgage who is allowed to sell the house for $80,000 is supposed to pay taxes on the remaining $20,000.
But a law known as the Mortgage Forgiveness Debt Relief Act saved such homeowners from the tax burden. Last year, Congress rushed to extend the law during negotiations about the so-called fiscal cliff, but only through the end of 2013. Now it's down to the wire again.
Lawmakers and housing advocates argue that the rule hurts those who are financially strapped. Since 2009, more than 220,000 homeowners have sold their houses for less than they were worth through a short sale with help from a government program. There are more than 6 million homes underwater across the country, according to a third-quarter report from research company CoreLogic.
That is down from more than 11 million homes during the peak of the housing crisis in 2009, but it shows that despite the sector's strong recovery, many homeowners are not out of the woods.
“What you're looking at is people who have lost their house,” said Marceline White, executive director of the Maryland Consumer Rights Coalition. “And then to have them hit with this tax just boggles the mind.”
Maryland, which has more than 214,000 homes with negative equity, plans to extend a measure exempting its residents from state taxes even if the federal law expires. The state took the same step last year and was one of the few to do so.
“We saw that thousands of Maryland homeowners would be suddenly getting this tax burden,” said Delegate Craig Zucker, D-Montgomery.
Zucker is among a group of Maryland lawmakers, including Democratic Gov. Martin O'Malley, who are pushing to get the measure extended as soon as the state legislature returns to session in January.
At the federal level, there are three bills — two in the House and one in the Senate — that call for the law's extension. One of the House bills enjoys strong bipartisan support, with 29 Democrats and 23 Republicans on board. The Senate bill, which would extend relief through 2015, is sponsored by Sens. Debbie Stabenow, D-Mich., and Dean Heller, R-Nev. Stabenow sponsored the extension last year.
It is unclear whether Congress will make the law a priority next year.
Last week, a group of lawmakers led by Rep. Elijah Cummings, D-Md., sent a letter urging Congress to pass the bill as soon as possible.
A separate letter from the National Association of Attorneys General made the same request.
“We're far from out of the foreclosure crisis,” White said. “We hope that policymakers look at longer-term solutions.”
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Former athletes open businesses
- Apprenticeship programs fill gaps in American manufacturing
- Chevron laying off 162 workers from Moon-based unit
- Password change can block hackers from wireless cameras
- Workarounds exist for battery woes
- Energy industry says it’s on top of methane leaks, but environmentalists want oversight
- Interest in hybrid, electric vehicles declines while gas prices fall
- First-time home-buyers expected to pump up sales in 2015
- Bank of New York Mellon 4Q earnings rise to $793 million, but revenue sluggish
- Typewriters back in style, keeping repair shops busy
- Google to roll out wireless phone plan