December 30, 2013

Tax break for underwater homeowners ends today

Dec. 31, 2013 – A tax break benefiting underwater homeowners who receive principal forgiveness mortgage modifications is one of the more than 50 deductions and credits set to expire this year-end barring congressional action.

Once expired, borrowers have to treat any type of principal forgiveness mortgage modifications as income for tax purposes, including forgiven mortgage debt in the event of a short sale. Congress enacted this tax break at the start of the housing crisis to help homeowners who could no longer meet their financial obligations.

Congress has put forward efforts to extend this tax break. H.R. 2788 and S. 1187, both titled the "Mortgage Forgiveness Tax Relief Act." would extend the break through 2014. H.R. 2788 was introduced by Rep. Joe Heck, R-Nev., and S. 1187 was introduced by Sens. Debbie Stabenow, D-Mich., and Dean Heller, R-Nev.

Rep. Tom Reed, R-N.Y., has introduced similar legislation as H.R. 2994. Reed's bill, which has 52 cosponsors, would extend the tax break through 2014.

All these bills are awaiting committee action.

Senate Majority Leader Harry Reid, D-Nev., attempted to bring up a one-year extension of the tax break earlier this month along with a number of other expiring tax provisions before the Senate, but was not granted the unanimous consent he needed for the votes to occur.