Senator Stabenow Introduces Bipartisan Legislation to Protect Homeowners from Higher TaxesWednesday, January 18, 2017
U.S. Senator Stabenow, a senior member of the Senate Finance Committee, announced bipartisan legislation to protect homeowners who are underwater on their mortgages from being hit with additional income tax. The Mortgage Debt Tax Relief Act extends for two years a provision to ensure homeowners aren’t required to pay additional taxes when they receive mortgage principal forgiveness because of a short sale, foreclosure, or a mortgage modification. The legislation is co-authored by Senators Dean Heller (R-NV), Johnny Isakson (R-GA), and Bob Menendez (D-NJ).
Senator Stabenow authored the original law to protect homeowners in 2008 and has successfully led the effort to extend this tax cut for families every year after. She also authored additional protections in 2015 to ensure homeowners are eligible for relief as long as the agreement to reduce their mortgage debt is in writing before the extension expires. The Mortgage Debt Tax Relief Act will extend the tax cut and these additional protections, which expired at the end of last year, through December 31, 2018.
“Many families in Michigan and across our country are still underwater on their mortgages,” said Senator Stabenow. “Homeowners who are willing to work with their lenders shouldn’t have to pay hundreds or even thousands of dollars in additional income tax.”
“While the housing market continues to make a strong comeback in Michigan, passage of this legislation is vital to continue that momentum by keeping Michigan homeowners from being unfairly taxed,” said Jason Copeman, 2017 Michigan Realtors® President. “We applaud the efforts of Senator Stabenow, along with the bill co-sponsors, for recognizing the importance of this tax relief for homeowners not only in Michigan, but across the country.”
Declining home prices and rising foreclosure rates have left many families with outstanding mortgage debt after a foreclosure or short sale, or have made families eligible for mortgage modifications that reduced the principal they owed. The IRS previously taxed any loan forgiveness provided to homeowners as “income,” meaning families were paying thousands of dollars in income tax for phantom income that wasn't actual money the family had earned.
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