Distressed Homeowners Set to Ring in New Year With New Taxes
A tax distressed homeowners have not had to deal with in years may return if Congress does not pass another extension. Since December 2007, the Mortgage Debt Relief Act has given struggling homeowners a tax break by not having them include their canceled debts as reportable income.
When a loan is made, a person is obliged to repay the amount, and therefore it is not income. However, when the debt is canceled, that person is no longer obligated to pay the amount back, and the residual, unpaid amount becomes taxable income. In 2012, as part of the fiscal cliff negotiations, Congress passed an extension of the Act.
The National Association of Attorneys General sent a letter to Congressional leaders December 19, urging that Congress act to pass legislation on this matter before the law expires. ”We supported your extension of this benefit last year and we continue to believe that this relief is crucial to both the homeowners struggling to regain their financial footing and to the battered housing market whose recovery is slow and still uncertain,” the attorneys wrote.