According to an IRS ruling yesterday, Federal payments are NOT taxable to homeowners. That's good news for many taxpayers. This ruling doesn't come as a big surprise. The IRS has consistently ruled that assistance payments for general welfare from the federal government are not taxable. However, this ruling specifically addresses the
HFA Hardest Hit Fund and the
Emergency Homeowners' Loan Programs (EHLP).
The
HFA Hardest Hit Fund provides funds to states to assist in preventing avoidable foreclosures and to stabilize housing markets. It's available in states where unemployment meets or exceeds the national average, or where housing prices have declined more than 20% from peak prices. Florida and Georgia are two of the nineteen states eligible for funding.
Part of the
Dodd-Frank Wall Street Reform and Consumer Protections Act, the EHLP provides assistance to homeowners that have experienced a substantial reduction in income as a result of involuntary unemployment or underemployment due to adverse economic or medical conditions, and are at risk of foreclosure.
Notice 2011-14 recognizes that both of these programs promote general welfare, and therefore the payments made to or on behalf of a homeowner are excludable from the taxpayer's gross income. However (and there's always a "however"), the homeowner's Form 1098, Mortgage Interest Statement, will reflect the total of all payments.
Taxpayers need to be aware they cannot deduct any amounts on those statements that were not paid by their own funds, including interest, property taxes and mortgage insurance.
In the state of Florida, see
Florida Hardest Hit for more information.