A Democratic New York legislator is working on closing a loophole in the tax code that continues to penalize borrowers.
In a strange twist of legislative folly, a provision of the U.S. tax code winds up putting struggling homeowners under more pressure. Typically, homeowners unable to meet their mortgage payments broker some sort of a deal with their lenders, who generally agree to take a lesser sum given the circumstances. The problem, under Section 108 of the code, is that this unpaid money can be considered "imputed" income, meaning it's taxable.
Clearly, though, these homeowners are in financial straits and have little to no money available to foot a tax bill. Longtime U.S. Rep. Charles Rangel has introduced House Resolution 3648, which would effectively repeal this outdated and unnecessary provision.
The same resolution would also allow FHA borrowers to continue to write off mortgage insurance for their loans through the end of 2014. These tax write offs can save the average homeowner somewhere around $350 annually.