Tax News

CCH (cch.taxgroup.com) reports:

House lawmakers voted unanimously to approve the Mortgage Forgiveness Debt Relief Act of 2007 (HR 3648) clearing the measure for President Bush's expected signature. The measure creates a three-year exception to current law so that homeowners caught in the current subprime mortgage crisis do not have to pay taxes for debt forgiveness on their troubled home loans.
House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., said the legislation was needed to protect homeowners. "Current law treats forgiven mortgage debt as income, but it is simply unfair and unconscionable that families would have to suffer through a foreclosure only to be dealt a second blow in the form of a tax bill when their net worth has not increased," he said.
The bill would also extend a provision allowing homeowners to deduct mortgage insurance payments from their taxable income. The bill would also ease restrictions for qualifying as a housing cooperative corporation.
Other provisions included in the bill provide tax relief for volunteer firefighters and emergency medical technicians; protection of tax relief for homeowners after the death of a spouse; and flexibility to help co-op tenant/owners deduct real estate taxes and mortgage insurance. The bill is fully offset by increased penalties for failure to file S corporation or partnership returns and new requirements for corporate estimated tax payments.
White House Support
President Bush plans to sign the White House-backed mortgage tax relief bill "because he believes it is good policy," White House Press Secretary Dana Perino said. The bill will "protect homeowners from having to pay extra taxes when they refinance their mortgages on the difference," she noted.
Praise from Treasury
In a statement issued immediate after passage, Treasury Secretary Henry M. Paulson, Jr., hailed the legislation as an important part of the president's overall plan to help homeowners. He stated, "Homeowners who restructure their mortgages to avoid foreclosure should not be hit with a tax bill as a result. This legislation will temporarily exclude homeowners who have restructured their mortgage loans from having to pay taxes on the mortgage debt forgiven."
In addition to praising Congress for its quick action, Paulson asked, as part of the president's larger plan, that they take final action on GSE and FHA reform, and approve legislation allowing state and local governments more tax-exempt bond authority to help homeowners refinance their existing loans. The administration's overall plan has been criticized lately by many groups from both sides of the aisle as being too little, too late to blunt the impact the mortgage crisis has had on the financial markets.
By Stephen K. Cooper, Paula Cruickshank and George Jones, CCH News Staff
JCT Estimated Revenue Effects of HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007, as Amended and Passed by the Senate on December 14, 2007, JCX-118-07.