Two similar pieces of legislation introduced last month in the House and Senate that would extend tax relief to homeowners who are underwater on their mortgage loans have been referred to committees and are waiting to be heard.
Congressman Tom Reed (R-New York) introduced the Mortgage Forgiveness Tax Relief Act of 2015 (H.R. 1002) on February 13, and that bill is now being heard in the House Committee on Ways and Means. Two weeks later, Senators Debbie Stabenow (D-Michigan) and Dean Heller (R-Nevada) introduced a similar bill (S. 608), which is currently in the Senate Banking Committee. Both bills would extend relief to homeowners on forgiven mortgage debt – the remaining mortgage balance when a borrower sells a home in a short sale to avoid foreclosure. The bills would allow homeowners to exclude the forgiven debt from federal income tax forms and not report it as earned income.
Without such legislation, distressed and underwater homeowners would be required to report the amount of mortgage debt forgiven in a short sale as taxable income.