New legislation proposed in the House of Representatives would extend the Mortgage Debt Relief Act of 2007, a federal provision that allows taxpayers to exclude from their income the debt reductions that resulted from mortgage restructuring or foreclosure settlements.
Passed in 2007, the bill applies to up to $2 million of a married couple’s forgiven debts up to 2012, when it was originally set to expire. It does not apply to circumstances not related to declining home values or financial hardships.
According to a HousingWire piece on the act, U.S. Reps. Jim McDermott, D-Wash., Shelley Berkley, D-Nev. and John Larson, D-Conn. introduced the Homeowners Tax Fairness Act to “protect homeowners and servicemembers who were wrongly foreclosed on and entitled to relief under the historic national mortgage settlement from additional tax burdens.”
The representative’s legislation would extend the act to coincide with the three-year timeline that is anticipated for the recently-filed $26 billion mortgage settlement. If the act were to expire, many of the servicemembers and homeowners who were wrongfully foreclosed on – and who would receive compensation as part of the mortgage settlement – would have to file those earnings for federal income taxes.
Berkley said the bill protects victims of fraud not just in her home state of Nevada, but throughout the United States.
“We need to protect homeowners and servicemembers who have already been the victims of fraud or unfair foreclosure practices from also being hit with a new tax bill resulting from this mortgage settlement,” she said. “This legislation will prevent homeowners in Nevada and nationwide who receive refinancing help, principal reductions or direct payments under this settlement from having to literally pay for the fraud and deception committed by banks and members of the mortgage industry.”
The representatives expect the bill to aid 1.7 million homeowners across the U.S., according to HousingWire.