Nevada state Treasurer Kate Marshall and some of her counterparts nationwide are calling on Congress to fix what they say is an unfair and unexpected hit to families trying to avoid foreclosure.

Marshall said existing federal law penalizes homeowners who are able to restructure their mortgage and avoid losing their home by treating the amount they save through the new mortgage terms as "realized income."

"At the very moment that a family is trying to escape the potential loss of their home, they will receive a letter from IRS telling them they owe income taxes on the loan modification," she said in a letter to each member of Nevada's congressional delegation.

"The lender's steps are thwarted, the financial burden on our families and communities increases and much of the money saved may now go to the IRS," the letter states.

That amount, especially in Las Vegas, where many of the homes in foreclosure sold for $400,000 or more, could be substantial.

"So if you are able to restructure your mortgage and you're actually able to see some light at the end of the tunnel, you get whacked by the IRS," she said Friday.

Marshall's letter, like those from treasurers nationwide, calls on Congress to pass the Mortgage Cancellation Relief Act of 2007, which would exempt that money from taxation.

Marshall said the need is especially critical in Nevada, which has the nation's highest rate of pre-foreclosure filings for the last 10 straight months. She said Nevada has one pre-foreclosure filing for every 185 households, a per capita rate of 4 percent.

Marshall said she learned about the effort from the Ohio treasurer's office and immediately agreed to help the effort.

"An added tax bill at a time when what we're trying to do is keep people in their home is adding insult to injury. If it's your primary residence, we need to help you stay in your home," she said.

Sen. Harry Reid, D-Nev., is one of the sponsors of the legislation.



• Contact reporter Geoff Dornan at gdornan@nevadaappeal.com or 687-8750.