Fearing a setback for financially strapped homeowners and disruption to a slowly improving housing market, Attorney General Peter F. Kilmartin has joined again with 41 attorneys general from around the country in urging Congress to extend soon-to-be expired tax relief for distressed homeowners into next year.
The expiration comes at a time when the national housing market, while still fragile, has shown signs of gradual improvement over the last year. Data shows that home prices have increased this year, and the S&P/Case-Shiller home price index reported gains of 12 percent or more. CoreLogic has also estimated that 2.5 million more families have had their homes returned to positive equity in the second quarter of 2013.
Rhode Island, however, has not shown as much improvement. According to the most recent report by HousingWorksRI, Rhode Island saw an increase in the number of foreclosures in the third quarter of 2013 as compared to the same period last year. Additionally, the report stated that in the third quarter, Rhode Island remained third in New England and ninth in the nation for percent of seriously delinquent loans.
Under the federal Mortgage Debt Relief Act, in effect since 2007, mortgage debt that is forgiven after a foreclosure or short sale or through a loan modification provided to a homeowner in financial hardship may be excluded from a taxpayer's calculation of taxable income. This exclusion only applies to mortgage debt forgiven on primary residences, not second homes.
"I urge Congress to again extend this critical tax exclusion so that families who have been able to receive mortgage debt relief do not then face a tax bill that they cannot afford," Attorney General Kilmartin said. "With Rhode Island's housing market slowly recovering from the foreclosure crisis, mortgage delinquencies in our state are still well above the national average. Many families are struggling, and this tax relief is essential not only for them, but for our state's continued market recovery."
An extension for 2014 is included in the Mortgage Forgiveness Tax Relief Act (S. 1187 and H.R. 2788), both of which are in committee; it is uncertain when these critical bills may be considered. The current Ryan-Murray budget proposal does not include the exemption provision.
Last year, Attorney General Kilmartin joined 41 other attorneys general in successfully persuading Congress to extend these benefits into 2013.
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