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AG Koster Reminds Borrowers That Principle Reductions and Short Sales May be Tax Exempt

(Source: Attorney General Chris Koster) – Jefferson City, Mo. – Attorney General Chris Koster today said that Missourians who received mortgage relief, including principal reduction and short sales, for their primary residence may be able to consider the value of the relief received as non-taxable income.

Koster said the National Mortgage Settlement announced last February required the settling banks to provide more than $16 billion to consumers nationwide in the form of principal reductions, short sales and other relief over three years.  More than $112 million of relief has been provided to Missourians so far.  Koster and Attorneys General from other states sent a letter to Congress in November asking them to extend a measure set to expire at the end of 2012 to protect that relief from being treated as taxable income.  January 1, 2013, Congress passed the extension as part of the American Taxpayer Relief Act of 2012.

“Many Missourians were harmed by the recession and the housing crisis and found themselves upside-down in their mortgages or facing foreclosure,” Koster said.  “The National Mortgage Settlement aims to help struggling homeowners by arranging lower payments and providing other assistance. Those who rely on the Settlement to stay afloat can scarcely afford to pay additional taxes on the relief they receive. I am pleased that Congress heeded our concerns and gave the homeowners the tax exemption they needed.”

Koster said that although banks may send IRS 1099 forms to Missourians indicating the amount of relief provided under the National Mortgage Settlement being reported to the IRS, the relief for a primary residence will likely not have to be counted as taxable income.  The same exclusion will probably not apply to second homes or investment rental property.

Missourians with questions about the National Mortgage Settlement can contact the Missouri Attorney General’s Mortgage Hotline at 855-870-7676. Individuals who have questions about their own tax situation are encouraged to consult their attorney or other tax professional.

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