” Of all the tax changes likely to expire,” Rep. Brad Miller said, ” this is the one that causes me the most concern.”
And homeowners abused by banks throughout the mortgage process would suffer a final nightmare courtesy of the Internal Revenue Service.
The letter from Bank of America Home Loans got right to the point. ” We are pleased to inform you that we have approved your Home Equity Account for participation in a principal forgiveness program offered as a result of the Department of Justice and State Attorneys General global settlement with major mortgage servicers.” In the letter, which I obtained from an anti-foreclosure activist, Bank of America offered the homeowner full forgiveness of their entire home equity loan balance of over $177,000. But then Paragraph 5 came with an ominous warning: ” Please be aware that we are required to report the amount of your cancelled principal debt to the Internal Revenue Service.”
Under current law, a principal reduction like this would be exempted from tax liability. However, that law, the Mortgage Forgiveness Debt Relief Act, expires at the end of the year, and after that, any mortgage debt forgiveness provided to a borrower will count as gross income for tax purposes, potentially costing millions of families several billion dollars. In the above case, the borrower would be required to pay taxes on the entire $177,000 amount forgiven by the bank, as if it were earned income. And that’s money that struggling homeowners simply don’t have.
SALON
