There are a number of tax breaks that could expire by the end of this year, and a few in particular might have a negative impact on homeowners if lawmakers don't vote to extend them.
A group of legislators recently called on Senate Majority Leader Harry Reid to allow a vote that could continue offering tax relief to struggling homeowners who receive mortgage principal forgiveness through a loan modification or a short sale.
If this break expires, homeowners who complete either of these transactions will be required to pay taxes on the forgiven debt. Currently, certain struggling borrowers can exempt up to $2 million from their taxable income under the Mortgage Debt Relief Act of 2007.
"These tax cuts will reassure families, help spur job growth and boost the economy," said chairman of the Senate Finance Committee Max Baucus, according to HousingWire.
A proposal to extend the relief passed through the Finance Committee under the Business Tax Cut Certainty Act by a 19-5 margin. If approved by the Senate, this would extend the relief until the end of 2013, providing greater financial safety and soundness for homeowners who are upside down on their mortgages.
Extension met with some resistance
However, some legislators fear that by prolonging the tax break, it could result in potentially billions of dollars of lost revenue. At a time when lawmakers continue to debate over an effective way to balance the national deficient, many argue that the loss of this revenue could be devastating.
Other programs in the works
Even if the Senate allows the principal reduction and short sale tax break to expire, Congress is currently formulating new programs that could provide assistance for an additional 11 million homeowners saddled with negative equity. But some say that borrowers could avoid utilizing these initiatives if it means they would have to pay taxes on their forgiven debt.
Further, the multibillion-dollar settlement reached between the nation's largest lenders and state attorneys general is expected to provide the monetary means needed to implement new and improved programs, so they don't add even more pressure to the national budget. In addition, the Federal Housing Finance Agency recently announced that starting in November, Fannie Mae and Freddie Mac would ease lending regulation that could streamline the short sale process, allowing more borrowers to qualify.