The housing market has made some significant strides since the depths of the economic downturn.
Unfortunately, while we are nearly five years down the road, millions of homeowners still live with the knowledge that they owe more money on their mortgage than their home is worth. On top of that hardship, job growth remains scarce in many parts of the country. To obtain employment, distressed homeowners are often required to move and sell their home. Those who are currently underwater on their mortgages face tough choices, including allowing their home to go into foreclosure or staying put and missing out on a new employment opportunity because they cannot sell their homes without incurring a loss.
Previously, the borrower was required to report that $15,000 in debt forgiveness as income for tax purposes, creating thousands in tax liability the borrower presumably can ill afford to pay. Fortunately, in 2007 Congress recognized this dilemma during the housing crisis and passed into law the Mortgage Forgiveness Debt Relief Act as a way to help many Americans avoid being taxed on debt forgiven by mortgage companies.
Despite the fact that Congress acted during the crisis, the law was temporary and it needlessly expired in 2013. That means millions of homeowners across the country now face a choice: come up with thousands of dollars to pay taxes owed or go through an expensive, and often debilitating, foreclosure process.
Clearly, Congress should act to bring back this common sense policy of exempting forgiven mortgage debt from taxation. This can be done by supporting Sens. Debbie Stabenow (D-Mich.) and Dean Heller’s (R-Nev.) Mortgage Forgiveness Tax Relief Act. Their legislation would reinstitute and make retroactive the moratorium on taxing forgiven mortgage debt. Importantly, the act would be in place through the rest of this year and all of 2015.
While the worst of the housing crisis may be behind us, its effects remain. Many borrowers are still underwater and jobs are returning far too slowly. Large numbers of Americans continue to live paycheck to paycheck, and any unexpected event – a family sickness, divorce, a temporary job disruption – can push a homeowner into real hardship.
The desire to own a home remains a fundamental and powerful goal. Many would argue it is at the very heart of the American Dream. The hangover from the largest economic crisis in generations still clearly exists, and now is not the time to raise taxes on distressed homeowners. That is just common sense. Therefore, Congress should pass the Mortgage Forgiveness Tax Relief Act and extend this crucial form of homeowner relief.
Pawlenty was governor of Minnesota from 2003 to 2011 an a Republican presidential candidate in 2011-2012. He is the CEO of the Financial Services Roundtable. Stevens is president and CEO of the Mortgage Bankers Association. He previously served as assistant secretary of Housing/Federal Housing Commissioner at the U.S. Department of Housing and Urban Development, in the Obama administration.