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Tax relief granted for forgiven debt, private mortgage insurance

Bush administration allows three-year window

Friday, December 21, 2007

By Matt Carter
Inman News


President Bush signed into law Thursday a bill creating a temporary tax break for homeowners who are able to persuade lenders to forgive part of their debt, and extends a tax deduction for some families with private mortgage insurance.

For the next three years, the IRS won't count as income debt forgiven by lenders when troubled borrowers negotiate short sales or workouts on their primary residence that involve forgiveness of part of their debt.

HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007, also extends for three years a tax deduction allowing families earning $109,000 or less to deduct all or part their private mortgage insurance premiums from their taxable income -- which could save them an average of $350 a year.

In signing the bill, Bush said that not counting forgiven debt as income for tax purposes "will increase the incentive for borrowers and lenders to work together to refinance loans -- and it will allow American families to secure lower mortgage payments without facing higher taxes."

Richard Gaylord, president of the National Association of Realtors, said NAR has been advocating for such a change to the IRS tax code for nearly 10 years.

"We have always believed that it is clearly an issue of fairness and of not kicking people when they are down," Gaylord said in a statement.

As originally passed by the House Oct. 4 in a 386-27 vote, HR 3648 would have made the exemption permanent, and extended the tax deduction for private mortgage insurance until 2014. But those steps would have eliminated about $2 billion in tax revenue over a 10-year period, a problem the bill sought to offset tightening the rules for claiming a deduction on the sale of a second home.

The Bush administration argued that an exemption for forgiven debt should be temporary, and objected to provisions raising taxes on the sale of second homes. The Senate amended HR 3648 to address those concerns, and those changes were agreed to by House lawmakers in a Dec. 18 voice vote.

 I had to post this.... too good of a news article. 

NOW, isn't this good news?  Get out there and tell your short sale sellers that the Government is aware of what the economy is going through. 



Comments (1)

Independent Leadership & Financial Fitness Consultant - Pleasant Grove, UT
Good move by George for a change.  That's one funny thing Democrats have a hard time doing and that's limiting the power of the IRS.  Democrats seem to love taxes, though they do like helping the little guy when he's in trouble, but it's generally a hand out and it cost's someone in terms of taxes.
Dec 21, 2007 07:15 AM