The house of Representativis has passed the Mortgage Forgiveness Debt Relief Act of 2007. The bill wiill eliminate income tas on mortgage debt that has been forgiven by lenders on primary residence for people in financial hardships. In other words the IRS will no longer collect money from people who have worked out a deal with their lenders or after a short sale.
This would provide much needed relief to people losing their homes. As it stands now, a lender who forgives a debt to must provide provide a Form 1099 to the IRS stating the amount the borrower has been forgiven. The rules apply whether it is a short sale, foreclosure, deed in lieu of foreclosure or any arrangement that relieves the borrower of the obligation to pay some portion of their debt. If the property is sold at foreclosure or is sold for less than was borrowed as in a short sale, the difference is considered income and is subject to the tax.
If someone sold their home with lenders approval for $25,000 less than they owe on the property, the IRS taxes that $25,000 as income.
To offset the loss of income the bill also tweaks the capital gains tax rules of second homes based on a formula using the amount of time that the taxpayer actually lived in the property during the five-year period before the sale.
The bill overwhelming passed the house with bi-partisan support
Now if the Senate would follow suit, We will have something that wiill help some people who are in need.
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