Senators Introduce Bill to Eliminate Phantom Tax on Foreclosures
May 17, 2007
WASHINGTON - U.S. Senator Debbie Stabenow (D-MI) has introduced the Mortgage Relief Act, that would change current law that forces individuals to pay an income tax when they have had a part of their mortgage loan forgiven or have been forced to foreclose because of their inability to pay their mortgage. The bill is also sponsored by Senator Carl Levin (D-MI), George Voinovich (R-OH) and John Kerry (D-MA).
"It is wrong to tax families when they are experiencing economic hardship and losing their home,” said Stabenow. “This bill will prevent additional, unfair economic hardship in the lives of those who find themselves in truly unfortunate circumstances."
Declining home prices and rising foreclosure rates have left some families having to sell their homes for less than they paid for them, and sometimes for less than the outstanding debt. The IRS currently taxes any loan forgiveness as “income”. The Mortgage Relief Act will relieve families of a tax burden when their lender forgives part of the mortgage on a principal residence.
"Clearly it is unfair to tax people on phantom income,” said Stabenow. “When families are met with a tragedy – the death of a spouse, catastrophic health costs – that may mean the loss of their home, it is wrong to saddle them with an additional tax burden."
From 2005 to 2006, the Detroit metropolitan area had the highest percentage of households in foreclosure in the 150 largest metropolitan areas, with an average of more than 10,000 foreclosures in each quarter. The foreclosures affected 1 out of every 21 households, nearly five times the national average. Over the first quarter of 2007, Michigan had over 29,000 foreclosures and Detroit was on pace to record 11,000 for that same time period. The Mortgage Relief Act, is companion legislation to H.R. 1876 introduced in the House by Rep. Rob Andrews (D-NJ) and Ron Lewis (R-KY).