Congress must expand tax relief for distressed homeowners and those who experienced foreclosures and short sales

Congress must change the Mortgage Debt Relief Act of 2007 to extend the life of the legislation and expand benefits for homeowners affected by the housing crisis.

The Mortgage Debt Relief Act of 2007 allows homeowners to avoid paying taxes on mortgage debt forgiven though the foreclosure or loan modification process under certain conditions, but will expire in 2012. Given projections of a prolonged housing crisis, it is appropriate for Congress to extend the legislation another five years, and expand the provisions to give tax protection to those who lost investment properties or refinanced to pay off student loans and other debt.

Homeowners who bought investment properties are not villains, and levying crushing taxes on those who have already lost so much will only strip private individuals of their personal wealth and further impede financial recovery.

The IRS taxes any money taken out of a property and spent on anything other than home improvements. The presumption is that money spent on home improvements reduced a lender's liability in foreclosure, but those who used their homes as ATMs and splurged should pay for their irresponsible behavior. However, some lenders actually required homeowners to pay off credit card debt as part of their refinancing agreements, and consumers should not be penalized for settling unsecured debts, especially high-interest credit cards. Those with investment properties have also taken considerable losses in the housing crisis. The National Association of Realtors reports the median price paid for investment properties fell 43 percent between 2005 and 2009.

The same government that bailed out too-big-to-fail Wall Street firms without blinking an eye should have no qualms about offering modest tax relief to American families who have been devastated in this economy. The bottom line: Tax relief is the answer, not punishing those who provide housing for the less fortunate.

For the latest real estate foreclosure news and information, visit www.USHUD.com, America’s only free foreclosure news and information resource.