TRENTON – November 21, 2012 – (RealEstateRama) — Attorney General Jeffrey S. Chiesa announced today that New Jersey has signed onto a national letter urging Congress to extend tax relief for consumers who have mortgage debt canceled or forgiven because of financial hardship or a decline in housing values.
Attorney General Chiesa is among 42 Attorneys General to sign the letter to U.S. House and Senate leaders. The letter urges federal lawmakers to extend the hardship-related tax exclusion, in effect the past five years, which would otherwise expire on Dec. 31, 2012.
Under the 2007 federal Mortgage Debt Relief Act, mortgage debt that is forgiven after a foreclosure or short sale, or through loan modification provided to a homeowner in financial hardship, may be excluded from a taxpayer’s calculation of taxable income. The exclusion applies only to mortgage debt forgiven on a primary residence.
The tax exclusion’s scheduled expiration comes at a time when many New Jersey homeowners, and homeowners nationwide, are benefitting from the $25 billion National Mortgage Settlement with the nation’s five largest loan servicing companies: Ally Financial, Bank of America, Citi, JP Morgan Chase and Wells Fargo. The joint state-federal settlement provides $17 billion in debt reduction and other relief to homeowners. Many other banks across the country also are offering mortgage modification and debt relief.
“It’s important that this tax exclusion be extended,” Attorney General Chiesa said, “so that the very consumers who can least afford it are not deterred from participating in the National Mortgage Settlement, or stuck with an unexpected tax bill for relief they received under the settlement, or through other debt relief programs.”
An extension of the hardship-related tax exclusion is included in the federal Family and Business Tax Cut Certainty Act of 2012, which recently passed out of the Senate Finance Committee with bipartisan support.