Tax News

CCH (cch.taxgroup.com) reports:

Homeowners affected by the nationwide subprime mortgage crisis would get $2 billion in tax relief, under the Mortgage Forgiveness Debt Relief Bill of 2007 (HR 3648), approved by the House Ways and Means Committee on September 26. The committee voted unanimously to approve the tax legislation, but some GOP lawmakers questioned the method of paying for the tax relief.
The legislation would permanently exclude from tax liability any mortgage debt on a principal residence that is forgiven following a foreclosure or renegotiation with lenders. Under current law, such debt forgiveness is considered income for tax purposes, resulting in tax liability for individuals and families. To pay for the tax relief, the bill would restrict taxpayers from excluding some gains from the sale of vacation homes or rental properties.
Rep. Sam Johnson, R-Texas, questioned why the tax relief for troubled homeowners would be permanent, rather than sunset after three years, as suggested by President Bush. Ranking committee member Jim McCrery, R-La., expressed dismay that tightening the capital gains rules on property used as vacation homes and rentals would cause the housing slump to worsen on the east and west coasts.
Rep. Kevin Brady, R-Texas, said that he wished the cost of paying for the relief was more tightly targeted to the lenders and real estate speculators who helped create the subprime lending crisis. Committee Chairman Charles B. Rangel, D-N.Y., brushed aside those concerns, however, saying that "it's so much easier to give the tax break than to pay for it." The legislation is expected to be voted on by the House in November, according to a committee aide.
By Stephen K. Cooper, CCH News Staff
Legislation to Exclude Discharges of Indebtedness on Principal Residences from Gross Income, HR 3648
JCT Description of an Amendment in the Nature of a Substitute to the Provisions of HR 3648, JCX-90-07.