Senate Passes Bill To End Tax on Mortgage Forgiveness

by Peter G. Miller
December 17th, 2007

The Senate has passed the Mortgage Cancellation Relief Act of 2007, a measure which would end the income tax borrowers face when lenders forgive up to $2 million in outstanding mortgage debt.

Sponsored by Sen. Debbie Stabenow (D-MI), the measure would also extend the deductibility of mortgage insurance for three more years. The current legislation making mortgage insurance deductible applies only to loans made between January 1st and December 31st of this year.

Under Section 108 of the Internal Revenue Code, forgiven mortgage debt is seen as “imputed” — and taxable — income. Many of those who negotiate a “short sale” with a lender wind up owing thousands of dollars to Uncle Sam because the forgiven debt is considered to be income under the tax rules.

Previously, the House had passed a similar bill, HR. 3648.

The bills are likely to zoom through the conference process and to be signed by the President. Why? Just how much money can the government collect from distressed, foreclosed and bankrupt borrowers?

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This entry was posted on Monday, December 17th, 2007 at 9:43 am and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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