Tax Breaks Ended Because Congress Went Home
A 6-year-old tax break enacted by Congress for struggling homeowners who won reductions in their mortgages in the wake of the subprime housing market crash has expired, causing alarm for housing advocates and lawmakers who insist it is still needed despite the rebound in the real estate market.
Under the 2007 law homeowners received free pass on taxes they otherwise would owe for aid they received from banks such as reductions in mortgage debt and so-called short sales – as much as $2 million in forgiven debt for each household was exempted from federal taxes. The law expired at midnight New Year’s Eve despite bipartisan support because lawmakers went home for the holidays without extending it.
“It’s a hit on people who are meant to be helped,” said Kevin Stein, associate director of the California Reinvestment Coalition, a housing advocacy group. “It is a big deal and it would be very unfortunate if, due to Congress’ inability to act, people will suffer.”
Stein as well as other housing advocates noted that about 6.4 million homeowners still are underwater (owe more on the loan than the property is worth) on their mortgages and that those borrowers could be helped if they received aid from banks.
Pending Legislation Could Extend Tax Break Through 2015
Pending legislation in the House and Senate would extend the tax break through 2015.
Lawmakers are expected to take up the issue when they consider extending dozens of other tax provisions that expired at year’s end. An extension of the mortgage forgiveness tax break could be passed retroactively.
“There is fatigue in Washington about government support for housing,” said Jaret Seiberg, a senior policy analyst at financial services firm Guggenheim Partners. “As a result, there is a real risk that the government will prematurely pull back support for housing.”
Still, he said there was a 60% chance Congress would extend the break and make it retroactive to Jan. 1.