The NATIONAL ASSOCIATION OF REALTORS® commended Senators Debbie Stabenow (D-Mich.) and George Voinovich (R-Ohio) for introducing a bill on Tuesday that would repeal a law that forces individuals to pay income tax when a portion of their mortgage loan is forgiven after a short sale or as part of a foreclosure.

Since the mid-90s, NAR has actively engaged in efforts to change this law and is encouraged by the actions taken today by the Senate in S.1394, the Mortgage Cancellation Tax Relief Act.

"This is a fundamental fairness provision. It will relieve a tax burden at a time when an individual has experienced a true economic loss arising from the loss of their principal residence," said NAR President Pat V. Combs, of Grand Rapids, Mich., and vice president of Coldwell Banker-AJS-Schmidt. "NAR pledges to work with Congress to see that this new legislation is enacted quickly. Clearly, it is unfair to tax people on a phantom income when they most likely have no cash with which to pay the tax," said Combs."

In light of the many families affected by subprime mortgages and the anticipated rise in foreclosures, NAR has been working hard on behalf of homeowners to help more families keep their homes, but also to make the nightmare of losing their home less burdensome.

The current tax code requires a lender who forgives a debt to provide a Form 1099 to the IRS stating the amount the borrower has been forgiven. This disclosure applies whether it is a short sale, foreclosure, deed in lieu of foreclosure or any similar arrangement that relieves the borrower of the obligation to pay some portion of their debt. If the property is sold at foreclosure or is sold for less than was borrowed, that difference is considered income and is subject to the tax.

The Stabenow-Voinovich bill would ensure that any debt forgiven on disposition of a principal residence will not be taxed. "NAR stands strongly with the senators and the bill they introduced today. It addresses a fundamental unfairness in the lives of those who find themselves in truly unfortunate circumstances. REALTORS® are about building communities, not just selling homes, and we want to prevent the dream of homeownership from becoming a nightmare," said Combs.

The legislation as drafted includes a provision to safeguard against abuses. The provision is similar to one that already exists for commercial real estate owners. This provision would equalize the treatment of commercial and residential property according to NAR.

- REALTOR® Magazine Online