NAR commends Congress for moving to eliminate “phantom tax” on foreclosures
 

WASHINGTON – April 19, 2007 – The National Association of Realtors® (NAR) supports legislation that would change the current law that forces individuals who went through foreclosure to then pay income tax on the portion of the loan that was forgiven.

Since the early 1990s, NAR has actively engaged in efforts to change this law and is encouraged by actions taken yesterday by the House of Representatives with the introduction of H.R. 1876, the Mortgage Cancellation Tax Relief Act.

“How can we add insult to injury? As if losing your home isn’t painful enough, to turn around and tax a family on what the government calls income is distressing,” says NAR President Pat Vredevoogd Combs. “NAR is especially thankful to Congressmen Rob Andrews (D-N.J.) and Ron Lewis (R-Ky.) for introducing the bill and we look forward to working with them to see that it quickly is passed.”

When homeowners with only a small amount of equity have no choice but to sell their home, stagnant or declining property values can cause them to fall short of the amount needed to pay off a mortgage (short sale). In addition, many families have been harmed by subprime mortgages and are finding themselves in foreclosure.

“Clearly, it is unfair to tax people on a phantom income, particularly right at the time they have experienced a serious economic loss and probably have no cash with which to pay the tax,” says Combs.

The current tax code requires a lender who forgives debt to provide a Form 1099 to the IRS stating the amount the borrower has been forgiven. That disclosure applies whether it is a short sale, foreclosure, deed in lieu of foreclosure or any similar arrangement that relieves borrowers of the obligation to pay some portion of their debt. If the property is sold at foreclosure or for less than the amount borrowed, that difference is considered income and subject to the tax.

The Andrews-Lewis bill would ensure that any debt forgiven on disposition of a principal residence will not be taxed.

“NAR stands strongly behind the Congressmen and the bill they introduced today. It addresses a fundamental unfairness in the lives of those who find themselves in truly unfortunate circumstances. Realtors are all about building communities – not just selling homes – and helping to prevent the dream of homeownership from becoming a nightmare” says Combs.
 

© 2007 FLORIDA ASSOCIATION OF REALTORS