For those folks still holding their breath about whether the Mortgage Forgiveness Tax Relief Act (“the Act”) will be extended, there are strong signs that it will occur. On, Thursday, April 3, 2014, the Senate Finance Committee, chaired by Sen. Ron Wyden D-Or, took up the “tax extenders” issue, which includes the Act. “Tax extenders” is a fancy term for political pork served up for certain favored groups that have the ear of various politicians. But rather than being accused of doling out permanent tax breaks for special interests, these perks are created on a “temporary” basis [wink, wink], and then quietly “extended” annually ad infinitum.
Once the pols get through arguing over which tax benefits will be continued and which will be cut, they will very likely get around to extending the Mortgage Forgiveness Act for the Little Guy – since no self-respecting politician actually opposes this law. When passed, it will be made retroactive to the start of this year. For a summary of Sen. Wyden’s view of extenders in general, go to the following link here.
Covering the issue, the online National Mortgage News, confirmed that:
Senate Finance Committee chairman Ron Wyden, D-Ore., included such a two-year extension in his tax bill unveiled Tuesday.
“Congress’ failure to extend mortgage debt forgiveness last year has created a situation where the federal government is now spending money on programs to prevent foreclosures, while threatening to tax the very homeowners they are trying to help,” according to a letter signed by 23 industry and other interest groups.
“This threat of being taxed on ‘phantom income’ from debt forgiveness is causing many homeowners to think twice before modifying their loan or completing a short sale. Instead, they are choosing to continue on a path toward foreclosure or to simply walk away,” the March 31 letter says.
While the Senate Finance Committee is on track to approve the tax extender bill quickly, it is unlikely to reach the president’s desk any time soon, according to analysts at Guggenheim Securities.
“We believe Congress is unlikely to complete work on the extenders package until late this year. It could come down to December,” analyst Jaret Seiberg wrote in a report on the tax extender bill.
Conclusion. It appears Sen. Wyden fully understands the issue. Many homeowners are still in the throes of some form of distressed housing event, either, foreclosure, deed-in-lieu, loan mod, or short sale. To tax them on the debt forgiveness that may accompany a successful outcome to their dilemma, makes no sense. The only solution is to continue the benefits conferred by the Mortgage Forgiveness Tax Relief Act created in 2007 when the housing/foreclosure crisis began. Why extending the Act got caught up in the political infighting over the other extenders is a sad commentary on Congressional dysfunction. The Act should have been extended well before December 31, 2013. The fact that it did not is inexcusable. Kudos to Sen. Wyden for taking control of the issue. It’s a breath of fresh air.
[Update – June 1, 2014] However, despite the signs of good news, the Forgiveness Act is only one of several tax extenders that must be voted on before the end of the year. The latest word is that the future of the most politically sensitive extenders will probably not be known until after the mid-term elections this November. This means that while it is likely the Forgiveness Act will be extended, it may have to wait several more months while the politicians resolve their disputes on the rest of them.