Connecticut Attorney General George Jepsen and U.S. Rep. Joe Courtney (2nd District) pressed Congress Tuesday to extend tax protections for forgiven mortgage debt.
The credit, which was enacted in 2007 but allowed to expire at the end of 2013, lets taxpayers to exclude the “gains” from mortgage modifications, short sales and foreclosures on their tax returns. Without that protection, homeowners would still be on the hook for tax liabilities on debt that was, in effect, erased.
“This tax provision protected families at a time when they needed it most,” Courtney said
in a release posted on his website. “Without the immediate and retroactive extension of this vital tax provision, millions of distressed American taxpayers will face even further and unnecessary financial stress.”
“Mortgage modification and debt-relief programs have provided real relief to homeowners that are fighting to keep their homes or trying to get back on their feet,” Jepsen said. “… Foreclosures affect more than just individual families; they have significant impact our communities, neighboring home values and our local economy. Until our housing market recovers, we cannot expect a full economic recovery.”
1st District U.S. Rep. John Larson is a co-sponsor with Courtney of
H.R. 2994, the Mortgage Forgiveness Tax Relief Act of 2013, that would extend the Mortgage Debt Relief Act of 2007.
“Not extending this provision will add additional financial pressure on Americans already facing the strain of losing or trying to keep their homes," Larson said.“Congress must pass legislation in order to continue providing relief for struggling homeowners.”
Courtney, Jepsen and Larson found support for their bid to extend the tax protections in the real estate community.
As of Jan. 2, according to the Connecticut Multiple Listing Service, there are 772 short sales under deposit and 1,012 more on the market in Connecticut, excluding Fairfield County. If the protections aren’t re-upped, the sellers will have to pay taxes on the difference between what they owe and what the home sells for — usually at least tens of thousands of dollars.
“To expect these families to pay federal income tax on money they have not truly received at a time when they have used up their financial resources in an effort to hang onto their homes is simply unthinkable and will only cause further distress to them,” said Debra Chamberlain, President of the Connecticut Association of Realtors, in Courtney’s release. “It will also slow the recovery of the overall market and economy at a time when we have finally begun to see slow but steady improvement in most regions.”
Rachael LaFleur Johnston, a broker and owner of Johnston & Associates Real Estate in Thompson, agreed.“We are finally starting to see some positive recovery in the real estate market, much of that attributed to short sales and foreclosures,” she said. “The loss of this tax exemption will undoubtedly result in a major setback in that much welcomed positive motion.”