The omnibus appropriations bill, which is a $600 billion bipartisan spending bill that includes the extension of several tax relief provisions, has passed in the House of Representatives and the Senate and is expected to go before President Obama on Friday.
The bill includes a standalone proposal sponsored by U.S. Rep. Tom Reed (R-New York) known as the Mortgage Relief Assistance Act that extends a provision allowing homeowners to exclude forgiven mortgage debt (the remaining mortgage loan balance when a borrower’s principal residence is sold in a “short sale” to avoid foreclosure) from their gross income when filing tax returns. According to the National Association of Home Builders (NAHB), the forgiven mortgage debt exemption is expected to save homeowners about $3.3 billion for the tax year 2015.
The President is expected to sign off on the bill. He signed off on a similar bill last year on December 19 that retroactively extended 55 tax provisions, including the one that provides tax relief for forgiven mortgage debt.
“We want to make sure that families who are trying to stay on their feet aren’t kicked while they are down,” Reed said. “Many times they have tried to do everything right, but still run up against tough financial times and the Federal government shouldn’t add insult to injury by levying a tax bill that could cost their homes.”
“We want to make sure that families who are trying to stay on their feet aren’t kicked while they are down.”
Rep. Tom Reed (R-New York)
The exclusion of forgiven mortgage debt provision is an extension of the Mortgage Forgiveness Debt Relief Act of 2007, originally signed into law by President George W. Bush, which relieved distressed homeowners from having to pay taxes on forgiven mortgage debt for the three calendar years of 2007 through 2009. That tax exemption was extended three more years until the end of 2012 with the Emergency Economic Stabilization Act of 2008, and it was extended until the end of 2013 with the American Taxpayer Relief Act of 2012. Last December president Obama extended the tax exemption for forgiven mortgage debt until the end of 2014.
Another provision of the omnibus bill allows homeowners to consider mortgage insurance premiums paid as mortgage interest, thus allowing them to include the paid premiums as a tax deduction (same for FHA, RHA, and VA insurance premiums paid in addition to private mortgage insurance premiums). NAHB says this deduction is expected to save homeowners approximately $1.3 billion for the tax year 2015.
Both the exclusion of forgiven mortgage debt provision and the premium deduction for mortgage insurance will be extended through the end of 2016.