Raleigh, N.C. — The House on Wednesday gave final approval to legislation that would continue to count mortgage debt that is forgiven as income for state tax purposes.
The measure goes back to the Senate for one final vote before heading to Gov. Pat McCrory for his signature or a veto.
Among other things, Senate Bill 726 continues to "de-couple" North Carolina from federal tax law on the mortgage issue. Federal law doesn't tax homeowners on that kind of debt forgiveness, but North Carolina law does and would continue to under the bill.
Democrats argued Tuesday that it makes little sense to charge people more in taxes if they had just been forced to sell their home in a short sale or lost it in a foreclosure. So, Rep. Bill Brawley, R-Mecklenburg, said Wednesday that he reviewed IRS publications and found debt forgiveness is discharged if people declare bankruptcy or insolvency.
Brawley noted, however, that even federal law doesn't allow people to write off money lost if they sell their home for less than they owe.
"We do recognize the justifiable concern about kicking people who are down," Brawley said. "If you are down, we are not kicking you."
Lawmakers approved an amendment that would exempt homeowners who had to sell at a loss because their property was contaminated by leaky underground heating oil tanks or by chemicals used by nearby industrial plants.