Could we see a resurrection of the popular Mortgage Forgiveness Debt Relief Act, via Congressional action?
When the Mortgage Forgiveness Debt Relief Act expired at the start of 2014, it ended one of the most popular Great Recession-era government programs.
A tax-exemption policy, the Debt Relief Act excluded the forgiven debt from a loan modification or short sale from taxable income, meaning that come tax day, the IRS could not tax that amount.
Still, heavy lobbying by the housing industry was not enough to extend the act beyond its 2013 expiration, though there are rumblings that the act could be making a belated – albeit wholly welcome – return.
A Phoenix-like Debt Relief Act
According to the latest article from housing insider Kenneth R. Harney, the Senate Finance Committee is expected to take a closer look at reinstating not only the Mortgage Forgiveness Debt Relief Act, but also a number of other popular housing tax breaks. Harney’s key points were:
- With Max Baucus, the former chairman of the Senate Finance Committee, shipping off to China as the U.S.’ new ambassador to the country, Ron Wyden, the Democratic senator from Oregon, is the new chairman.
- That new leadership, Harney reported, has shifted the committee’s priorities, and extending housing-related tax breaks are ” high on [Wyden’s] priority list,” according to Harney’s sources.
- Also, the committee may recommend extending the $2,000 tax credit for new energy-efficient home construction, as well as deductions for energy-efficient home improvements and write-offs for mortgage insurance premiums.
Bert Gor, the president of The Short Sale Group, Inc. with RE/MAX Professionals Select, who has written about the Mortgage Forgiveness Debt Relief Act for our site, said that bringing back the act would be very influential for Chicagoland’s housing market.
“Until the act is extended, many struggling homeowners are under the assumption that foreclosure is their only option, and assume other alternatives will lead to a tax consequence due to the expiration of the act,” Gor explained. “Illinois is, sadly, ranked in the top five of highest level of foreclosures in the U.S., so at a minimum, the extension will change distressed homeowners perception to consider other options, rather than to walkway. Foreclosure is never a better option.”
How Likely is an Extension?
We should be clear – at this point, nothing has been confirmed, so we have no clear documentation that the Senate Finance Committee is indeed recommending that the Senate revive those housing tax measures.
Also, even if the committee makes those recommendations, and even if the Senate approves them in an overwhelming fashion, they would still need approval from the House of Representatives, and Dave Camp, the Republican representative who chairs the House Ways and Means Committee, has not commented on whether or not he’d support the tax policies; in fact, his recent tax reform plan would eliminate or sharply limit the most popular housing tax deductions, including property tax write-offs and the legendary mortgage interest deduction.
So unfortunately, as with much of housing policy nowadays, we’re left with a “wait and see” status.