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Taxing Mortgage Debt Aid

September 19th

Even in the wake of the foreclosure crisis, many homeowners continue to struggle with mortgage debt. While the government has taken some initiative to help families save their homes and reduce their debts, another issue still lurks around the corner. A special mortgage debt assistance exemption is set to expire at the end of this year, which could leave many owing taxes on their aid.

Non-Taxable Income

The Mortgage Forgiveness Debt Relief Act was passed in 2007 and allows taxpayers to exclude income from the discharge of debt on principal mortgage loans. In other words, if a lender reduces the amount owed on the loan for a borrower, this money is generally considered “income”. Under this act, the “income” is not eligible for taxation, giving homeowners a break from an increased tax liability.

As we enter the fourth quarter of the year next month, many are growing increasingly concerned about the fate of this bill. If it is extended, homeowners will continue to receive much needed assistance, but could cost the national budget. If the bill is cancelled, it could boost our national financial position, but cost homeowners hundreds or thousands of dollars in added tax liability. The concern is that homeowners already experiencing financial trouble will end up further in mortgage debt, personal debt, with an added problem of tax debt.



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