Forgiven mortgages would not count as NC income under House bill

Published: Mar. 4, 2015 at 4:02 AM EST|Updated: Apr. 2, 2015 at 11:02 PM EDT
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RALEIGH, NC (Jim Morrill/The Charlotte Observer) - Troubled homeowners would not have to count forgiven loans as income under a version of a bill that began making its way through the N.C. House on Tuesday.

A House committee approved a new version of a bill that passed the state Senate last month. The measure makes changes in the North Carolina tax code in order to conform, or not conform, with provisions in the federal tax code.

For years, North Carolina allowed taxpayers not to count written-off mortgage debt as taxable income after Congress responded to the mortgage crisis by enacting a similar exclusion on federal income taxes. Last month, the Senate voted to change that.

To illustrate what that would mean, if a homeowner received $20,000 in mortgage principal forgiveness, he or she would have to pay $1,160 in additional taxes, based on the state's individual income tax rate of 5.8 percent. If $40,000 were forgiven, he or she would owe $2,320 in additional taxes.

Analysts say the proposal could affect as many as 4,000 North Carolina homeowners caught up in the mortgage crisis.

One House leader said most Republicans who control the House did not want the provision.

"The sense of the House was that the House wanted to conform (to the IRS rules)," said Rep. Bill Brawley, a Matthews Republican who chairs the House Finance Committee.

Of the re-written Senate bill, he said, "We expect (it) to pass the full House."

Brawley said not going along with the Senate version would cost the state $14 million in lost revenue.

In two House committees Tuesday, most of the discussion involved another part of the Senate bill – revisions to the state gasoline tax. The House proposes cutting the gas tax from 37.5 cents a gallon to 36 cents for the rest of the year. If lawmakers do nothing, the tax would drop 6 to 8 cents a gallon in July.

Brawley and other sponsors defended the change.

"I can cut your gas tax 71/2 cents on July 1, or I can fix your pot holes and fix your roads," he told a committee. "I can't do both."