Attorney General Peter F. Kilmartin has joined a national effort by state and territorial attorneys general to urge Congress to extend tax relief for consumers who have mortgage debt canceled or forgiven because of financial hardship or a decline in housing values.
Attorney General Kilmartin was one of 42 attorneys general to sign on to a letter to U.S. House and Senate leaders today, urging them to extend the tax relief, which will otherwise expire on December 31. Such legislation is currently included in Section 112 of the Family and Business Tax Cut Certainty Act of 2012 (S3521), which was recently passed out of the Senate Finance Committee with bipartisan support.
The expiration comes at a time when many homeowners nationwide are benefiting from the $25 billion national settlement agreement with the nation’s five largest loan servicing companies. Attorney General Kilmartin announced on Monday that more than 1,000 Rhode Island homeowners had received financial relief, valued at more than $73 million, from the national mortgage settlement.
“I urge Congress to extend this critical tax exclusion so that the very families who least can afford it are not stuck with an unexpected tax bill at the end of the year,” said Attorney General Kilmartin. “The mortgage modification and debt relief programs under the National Mortgage Settlement are providing real relief to homeowners fighting to keep their homes or trying to get back on their feet. Unless Congress acts, any progress made to right the housing market by the debt relief provided under the National Mortgage Settlement, as well as other mortgage debt relief programs, will likely be undone.”
Under the federal Mortgage Debt Relief Act, in effect since 2007, mortgage debt that is forgiven after a foreclosure, short sale or through a loan modification provided to a homeowner in a financial hardship may be excluded from a taxpayer’s calculation of taxable income. This exclusion only applies to mortgage debt forgiven on primary residences, not second homes.