January 7, 2014

Today, Congressman Joe Courtney (CT-2) and Connecticut Attorney General George Jepsen highlighted the need to extend tax relief for forgiven mortgage debt.  The tax provision, which allowed taxpayers to exclude “income” from mortgage modifications, short sales, and foreclosures from being subject to federal income taxes, expired at the end of last year. The provision was originally enacted in 2007, and was one of 55 tax provisions that the Republican-led House of Representatives allowed to expire last month. 

“This tax provision protected families at a time when they needed it most,” Congressman Courtney said. “Without the immediate and retroactive extension of this vital tax provision, millions of distressed American taxpayers will face even further and unnecessary financial stress.  The 2008 recession was triggered by a downturn in the housing market, and with our recovery still fragile, we must strengthen the housing market, not add to distressed homeowners’ burdens. Connecticut families deserve better, and Congress must act quickly to extend this policy.”

“Mortgage modification and debt relief programs have provided real relief to homeowners that are fighting to keep their homes or trying to get back on their feet,” said Attorney General Jepsen. “Through state programs and the National Mortgage Settlement, we’ve helped a lot of struggling homeowners, but without action from Congress, struggling homeowners will be dealt another blow. Moreover, foreclosures affect more than just individual families; they have significant impact our communities, neighboring home values and our local economy. Until our housing market recovers, we cannot expect a full economic recovery.”

“Not extending this provision will add additional financial pressure on Americans already facing the strain of losing or trying to keep their homes," said Congressman John Larson (CT-1). “Congress must pass legislation in order to continue providing relief for struggling homeowners. I thank Representative Courtney, Attorney General George Jepsen and others for their efforts and look forward to working on this important issue as we begin the 2014 session.”

“The recession has had far reaching and often devastating financial impacts on families throughout this country and here in Connecticut.  Over the past several years Realtors throughout the state and country have worked closely with these families as they painfully wade through the necessity of a short sale or foreclosure action.  To expect these families to pay federal income tax on money they have not truly received at a time when they have used up their financial resources in an effort to hang onto their homes is simply unthinkable and will only cause further distress to them.  It will also slow the recovery of the overall market and economy at a time when we have finally begun to see slow but steady improvement in most regions,” said Debra Chamberlain, President of the Connecticut Association of Realtors.

“We are finally starting to see some positive recovery in the real estate market, much of that attributed to short sales and foreclosures.  The loss of this tax exemption will undoubtedly result in a major setback in that much welcomed positive motion,” said Rachael LaFleur Johnston, broker and owner of Johnston & Associates Real Estate in Thomson, Connecticut.

Based on information provided to and compiled by the Connecticut Multiple Listing Service, Inc. as of January 2, 2014, in Connecticut (excluding Fairfield County) there are 772 short sales under deposit, and an additional 1,012 on the market. If the provision is not extended, these sellers would be subject to pay federal income tax on the debt forgiven in the short sale.

Congressmen Courtney and Larson are co-sponsors of H.R. 2994, the Mortgage Forgiveness Tax Relief Act of 2013. This legislation would extend the Mortgage Debt Relief Act of 2007, which was most recently extended in 2012 as part of H.R. 8, the American Taxpayer Relief Act. This provision allows taxpayers to exclude the discharge of debt from their primary residence from federal income. This includes debt reduced through mortgage restructuring or forgiven as part of a foreclosure or short sale.

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