With the looming fiscal cliff, many of the nation’s lawmakers are debating exactly what federal programs and tax breaks to cut in an effort to reduce the national deficit. But some top officials across the country are now fighting for one such allowance.
Last week, the attorneys general for 40 states plus Guam wrote a letter to some of the top officials in the U.S. Congress urging them to extend that tax breaks allowed under the 2008 Mortgage Debt Relief Act, according to a report from the office of Ohio Attorney General Mike DeWine. The reason for their concern is that it could lead many Americans who received some sort of debt forgiveness on their troubled home loans to face massive tax bills in the new year, which could further endanger their financial stability and lead to more instances of delinquency and default nationwide, which in turn can often turn into property seizures.
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“A home lost to foreclosure depresses future home sale prices, damages the value of surrounding homes, and harms families, neighborhoods, and our general economy,” the attorneys general said in their letter, which was addressed to several leaders in both the U.S. House of Representatives and Senate, including House Speaker John Boehner and Senate Majority Leader Harry Reid. “Requiring a homeowner to pay income tax on forgiven or canceled mortgage debt would make the National Mortgage Settlement much less effective.”
The decision not to extend the cuts will result in some $1.3 billion in tax increases, which is obviously significant in working toward a deal for the fiscal cliff, but those who would be saddled with the financial burden are taxpayers who are already struggling financially, the report said. Further, the attorneys general in particular object to the expiration of these allowances because it could undo some of the work they did in signing the national mortgage settlement earlier this year, which granted some $17 billion in debt reduction and other forms of relief to underwater borrowers.
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The housing market has made significant strides in the last several months, as rising property values have been noticed across the country. However, there are still many areas in which significant amounts of homeowners remain underwater on their mortgages, and any additional burden could only serve to further endanger their standing.
Image: Jerry7171, via Flickr