Sandy victims to benefit from federal tax break, home buyouts
SAYREVILLE, NJ – December 18, 2014 – (RealEstateRama) — A day after the United States Senate approved a one-year extension of a series of tax breaks, Senators Robert Menendez and Cory Booker today met with Sayreville homeowners to discuss the important of extension of mortgage debt reduction tax relief, especially for Sandy victims still struggling to recover. They also announced more than $3 million in federal funding to continue the acquisition and demolition of 196 flood prone properties in Sayreville.
“Families who faced the wind and the storm and the surge from Superstorm Sandy shouldn’t have to face insurmountable tax bills because their mortgage was underwater,” said Sen. Menendez. “It makes no sense to ask these families to pay thousands in taxes they simply cannot afford on income they never even saw.”
“Today, I am pleased to deliver some good news to many of the families continuing their struggle to rebuild in the wake of Hurricane Sandy,” said Sen. Booker. “Yesterday, the Senate passed an extension of a temporary tax provision that will help New Jerseyans avoid serious financial hardship when their mortgage debt is forgiven. This development comes on the heels of the $10.8 million of federal Sandy relief grants from FEMA that Senator Menendez and I announced last week. Those grants will fund the buyouts and demolition of flood-prone properties. While we have seen real progress over the last week with these two announcements, Senator Menendez and I recognize that there is much work left to do and are committed to making sure New Jerseyans receive the assistance they need to rebuild their lives after Sandy.”
The Senators were joined by Sayreville Mayor Kennedy O’Brien and neighbors Jennifer Herrick and Kimberly Wilcher. Both Herrick’s and Wilcher’s homes were severely damaged by Superstorm Sandy. Underwater on their mortgage and unable to make repairs, they accepted federally funded buyouts of their flood-prone homes, only to find out that they were poised to receive an unfair and overburdening tax hit, until yesterday’s legislative intervention.
The tax exclusion for mortgage debt cancellation, originally enacted to help homeowners grapple with the housing crash in the recent financial crisis, expired at the end of 2013. Without an extension, if a homeowner’s mortgage debt were reduced through mortgage modification, short sale, or other cancellation, the amount of forgiven debt would be treated as taxable income for the homeowner. As a result, a homeowner who cannot afford to pay his or her mortgage could end up with a tax bill in the tens of thousands of dollars based on phantom income he or she never received. The bill passed by the Senate halted this unfair and unaffordable tax for another year.
Sen. Menendez is the cosponsor of legislation to further extend this critical tax exclusion through 2015, so that homeowners don’t face the same problem once again in the new year.
Not only does this tax relief help Sandy victims struggling with mortgage debt, it also helps homeowners whose home values declined during the financial crisis and whose mortgages are still underwater because prices haven’t sufficiently rebounded in their neighborhood.
New Jersey has the highest foreclosure rate in the country at almost six percent. More than five million households nationwide still owe more on their mortgage than their home is worth, representing more than 11 percent of homes with a mortgage, according to analytics provided by property and financial data firm CoreLogic.