United States tax policy has been in the spotlight in recent months, with President Trump signing the Tax Cuts and Jobs Act into law in December, and experts debating what the long-term impact of the bill will be ever since. This week representatives  from the National Association of Realtors appeared before the U.S. House Ways and Means Subcommittee on Tax Policy  to argue in favor of making a tax exclusion for forgiven mortgage debt permanent.
The debate centers around mortgage forgiveness tax relief , a policy first implemented in 2007 and since renewed and extended several times over the years. The exclusion establishes that mortgage debt forgiven by lenders after a foreclosure, short sale, or loan modification is tax deductible. Without the exclusion, NAR explains that borrowers already working to recover from falling behind on their mortgage payments can be hit by the double-whammy of an added tax burden, even as they are trying to do the responsible thing and resolve their financial responsibilities.
"The exclusion for mortgage debt cancellation delivers a huge dose of fairness. When the investment in a home goes well, and the owner sells at a gain, the tax code generously waives capital gains up to $500,000," testified Barry Grooms, 2018 VP of Florida Realtors . "But what happens when things go sour, equity is lost, and the family is forced to sell short? Up through last year, the exclusion stepped in and relieved the often-impossible tax burden. If allowed to expire, we are left with a tax policy that rewards good fortune but piles on when the tables are turned. This is neither fair nor smart."
Grooms encouraged the subcommittee members to work toward making the forgiven mortgage debt exclusion permanent, so as to not leave borrowers in the lurch at a time when they need all the help they can get.
Grooms told the subcommittee members, “Cases of negative home equity will ebb and flow as well, even with a stronger economy. This is why we need a permanent exclusion to minimize the damage to families, neighborhoods, and communities."