(Source: Attorney General Martha Coakley) – BOSTON – Attorney General Martha Coakley issued the following statement today in response to the decision by Congress to extend tax relief for consumers who have mortgage debt canceled or forgiven because of financial hardship or a decline in housing values:
“We applaud Congress for extending this tax relief which is absolutely critical to help struggling homeowners stay in their homes,” AG Coakley said. “We will continue our efforts to assist homeowners in obtaining a loan modification or other relief as we work to reduce the number of foreclosures, stabilize the housing market, and rebuild our economy.”
AG Coakley had joined 41 attorneys general in sending a letter to U.S. House and Senate leaders in November, urging them to extend the exclusion, which has been in effect since 2007 and would have expired on Dec. 31, 2012.
The extension of this tax credit comes at a time when many homeowners in Massachusetts are benefitting from the $25 billion national settlement agreement with the nation’s five largest loan servicing companies. The second progress report on the national settlement released in November shows Massachusetts homeowners have received $266 million in relief so far, including significant principal reduction. Many other banks across the country also offer mortgage modification and debt relief programs. Without this action by Congress, principal reductions and loan modifications would have been considered taxable.
Under the federal Mortgage Debt Relief Act, in effect since 2007, mortgage debt that is forgiven after a foreclosure or short sale or through a loan modification provided to a homeowner in financial hardship may be excluded from a taxpayer’s calculation of taxable income. This exclusion only applies to mortgage debt forgiven on primary residences, not second homes.