An article that was recently published by a Southern Nevada newspaper brings a focus to an issue that many people in the housing industry have been talking about recently, the issue of taxing forgiven debt. In 2006, Congress passed a law that suspended the requirement to pay taxes on mortgage debt forgiven through a short sale, foreclosure, or loan modification. Prior to that time, if a homeowner was foreclosed on, they had had to pay taxes on the forgiven loan amount at the regular income tax rate. At a time of record foreclosures and short sales, this potential change could hurt a lot of American families.
The alarm hasn’t been raised just yet, but this issue could be a rather contentious one as the year marches on. Many freshman Members of Congress promised voters they wouldn’t support any additional “bailouts” for any group, so this could potentially fall into that category. The government is missing out on billions in tax revenue from this provision and at a time of rising deficits, some in Congress may not be willing to keep losing out on that revenue.
What do you think would happen to the housing market and our economy if this provision were to expire?Tweet