Download
HTML Embed
HTML EMBED
Click to Copy

Latest Episodes

Download
HTML Embed
HTML EMBED
Click to Copy
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace

The nest is full

Oct 11, 2019
Download
HTML Embed
HTML EMBED
Click to Copy
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Download
HTML Embed
HTML EMBED
Click to Copy

Homeowners might have to start paying taxes on forgiven debt again

Nancy Marshall-Genzer Oct 13, 2017
Share Now on:
HTML EMBED:
COPY
The Internal Revenue Service building in Washington DC.
Mark Wilson/Getty Images

It was 2007. The air was starting to leak out of the housing bubble. Home prices were beginning their free fall. 

“Many homeowners struggled to repay their mortgages, and were re-negotiating their mortgages with banks,” said Steve Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center.

As part of those re-negotiations the banks sometimes forgave part of the debt for homeowners who had missed mortgage payments or were underwater and sold houses for less than what they owed on their mortgages. But the IRS saw that forgiven debt as income. Homeowners had to pay taxes on it, even though they no longer had a home.

“And it seems as if the IRS is hitting people when they’re down,” Rosenthal said.

So, to take the pressure off people who were already struggling through the recession, Congress passed the Mortgage Forgiveness Debt Relief Act in 2007.  It was supposed to expire after two years. But the recession dragged on. And lawmakers kept renewing it, helping millions of homeowners. Rosenthal estimates the Act would help a few million more if it were renewed. People like 49-year-old Fikirte Betru from Germantown, Maryland. She and her husband scraped by for years, to make their mortgage payments on time.

“We live from hand-to-mouth,” said Betru. “He work, we pay mortgage.”

Betru, an Ethiopian immigrant, said her husband was diagnosed with bone cancer two years ago, and couldn’t work. He was a truck driver.  They fell behind on their mortgage payments. To avoid foreclosure, they deeded the house back to the bank.  The bank forgave around $150,000 of their debt.  If the Mortgage Forgiveness Debt Relief Act isn’t extended, they’ll owe around $20,000 in taxes.

“I don’t think it’s right if you give forgiveness and then, on the other hand you say, you have to pay,” Betru said.

Consumer groups are lobbying to keep the Act alive, but it’s tough going. For starters, they have to get lawmakers’ attention.

“A lot of people are saying we know, it’s on the list,” said Marceline White, executive director of the Maryland Consumer Rights Coalition.

She says getting an extension is usually pretty routine. But this year?  Everybody’s preoccupied.

“There are lots of issues just in the past month that have come up, between the hurricanes and immigrant rights,” she said.

And White said a lot of people think the housing crisis is over, but it’s far from over in many parts of the country, like in Germantown, Maryland, where close to 10 percent of homeowners are still underwater.  

If you’re a member of your local public radio station, we thank you — because your support helps those stations keep programs like Marketplace on the air.  But for Marketplace to continue to grow, we need additional investment from those who care most about what we do: superfans like you.

Your donation — as little as $5 — helps us create more content that matters to you and your community, and to reach more people where they are – whether that’s radio, podcasts or online.

When you contribute directly to Marketplace, you become a partner in that mission: someone who understands that when we all get smarter, everybody wins.

Check Your Balance ™️
Check Your Balance ™️
Personal finance from Marketplace. Where the economy, your personal life and money meet.

Thank you to all the donors who made our fall drive a success!

It’s Investors like you that keep Marketplace going strong!