An effort is under way in the Senate to renew legislation that spares underwater homeowners from having to pay income tax on mortgage debt forgiven by a lender, one of the chief supporters of the tax-relief provision told a group of politically active REALTORS® during NAR’s Federal Policy Conference in Washington.
Speaking on Feb. 5, Sen. Dean Heller (R-Nev.) said he is working with Sen. Debbie Stabenow (D-Mich.) to again extend a provision that Congress renewed for 2014, which lapsed on December 31. The Heller legislation, the Mortgage Forgiveness Tax Relief Act, would exempt forgiven mortgage debt from taxation through the end of 2016.
Heller and Stabenow are both members of the tax-writing Senate Finance Committee. Heller is also chairman of the Senate Banking, Housing and Urban Affairs Committee’s Subcommittee on Economic Policy.
Although he didn’t give a timetable for when the Senate might move forward on the measure, Heller indicated that he considers passing such a bill a priority and would like to see it happen quickly. He said that as a lawmaker from Nevada—which was particularly hard-hit by the housing downturn several years ago and has yet to fully recover—he especially aware of the severe impact falling home prices can have on home owners.
“I can’t make sense of anyone having to pay tax on income they never see,” Heller said.
Heller also said he thinks a deal on broader changes to the tax code is “within our reach,” although Hill staffers who spoke at the conference indicated that fundamental divisions over the issue between Republican lawmakers and President Obama will make achieving progress hard, particularly if the sides do not find common ground by late 2015.
One way the government could move ahead on tax reform is to reach an agreement on how to modify taxes on corporations, which Republicans on Capitol Hill and Obama agree should be a priority. The White House and Congress are further apart when it comes to the way the tax code treats individuals, because Obama has proposed raising taxes on the highest earners—a non-starter for Republicans, analysts say.
A key concern for some lawmakers, however, is that tinkering with corporate taxes without also providing relief to individuals would be unfair to small business owners such as real estate professionals, who often operate their businesses as limited liability companies (LLCs) or S corporations, meaning that income they generate passes through to their owners, who pay tax on it at their individual rate.