Phantom Income as of 1-16-14
The House Bill and budget has been sent to the Senate as I write today. It does NOT include an extension of the exemption that expired 12-31-13 for treating forgiven debt as income. There are still advocates for the extension of the exemption and this is the latest information available as of today:
Bill Seeks to Extend Federal Tax Exemption for Forgiven Mortgage Debt
Congressman Bill Foster (D-Illinois) introduced the Homeowners Debt Relief Extension Act (H.R. 3856) on Tuesday. The bill would extend the mortgage debt tax exemption that’s been in place since 2007 for another two years.
The Mortgage Debt Relief Act of 2007 makes debt that is reduced or cancelled through a loan modification or debt forgiven through a foreclosure or short sale tax-exempt. Other criteria also apply, such as the indebtedness must be on a principal residence and the maximum amount that can be claimed for the tax break is $2 million.
Since 2007, Congress has extended this tax relief to homeowners so that they are not liable for taxes on the difference between the house’s value and the loan modification or between the house’s value and the amount of a foreclosure sale or short sale. This tax relief expired on December 31, 2013, however, and so far, no extension has been passed by lawmakers, though homeowner advocates are lobbying heavily to reinstate the mortgage debt tax exemption.
Foster’s bill would ensure any qualifying reduction or cancellation of mortgage debt is not considered taxable income by extending this tax relief through January 1, 2016, for debt forgiven after December 31, 2013.
Foster’s proposal calls for the costs of such an extension to be offset by repealing a tax break in the Internal Revenue Code’s Section 199 for oil and gas companies. Foster says the Section 199 deductions are no longer necessary since oil and gas companies are making billions in profits each year.
“With millions of struggling homeowners still underwater on their mortgages, now is not the time to cut off this tax credit,” Rep. Foster said. “We shouldn’t be offering up millions in tax breaks to oil and gas companies, while leaving working families, still struggling to recover from the recession, with a bigger tax bill.”