U.S. Rep. Bill Foster (D-Ill.) has introduced legislation that would extend tax relief to underwater homeowners who have received loan workouts.
Under the Mortgage Forgiveness Debt Relief Act of 2007, homeowners are not liable for taxes on the difference between the value of their house and the loan modification or short sale amount. Congress had extended the break since 2007 until lawmakers allowed it to expire on Dec. 31, 2013.
Foster's bill, H.R. 3856, the Homeowners Debt Relief Extension Act, would extend the tax relief until Jan. 1, 2016, for debt forgiven after Dec. 31, 2013. The cost of reducing the tax burden for underwater borrowers would be offset by repealing a tax break for oil and gas companies under the Internal Revenue Code's Section 199.
"With millions of struggling homeowners still underwater on their mortgages, now is not the time to cut off this tax credit," according to Foster.