Fiscal Cliff Deal Gives Break to Underwater Homeowners

January 5, 2013 by Credit Union Times

More consumer-friendly provisions of the fiscal cliff deal that was signed into law by President Barack Obama Thursday morning keep surfacing.

Under a provision authored by Sen. Debbie Stabenow, D-Mich., underwater homeowners whose banks forgive a portion of their mortgage will not face huge new tax bills this year.

Stabenow’s Mortgage Forgiveness Tax Relief Act, which is extended for another year, stops the IRS from taxing mortgage forgiveness as income in the case of a short sale, refinancing or foreclosure, protecting families who own underwater homes and work with their lenders from being unfairly hit with an additional tax bill. The law was first signed by President George W. Bush in 2007 but set to expire at the end of 2012.

Michigan is fifth in the nation in underwater mortgages, with nearly one in three homes underwater (over 440,000 homes across the state), according to a statement released by Stabenow’s office.

“It was extremely important that Congress was able to come together to make sure families whose homes are underwater don’t get hit with a huge new tax bill they don’t deserve,” said Stabenow, in the release. “Across Michigan and across the country, many middle-class families are still working to recover from the global financial crisis that sent home values plummeting. If Congress had not included this provision, the housing market could have taken a big hit just as it is starting to turn the corner.”