Legislation that would help foreclosed borrowers avoid big tax bills made it through a congressional committee today. The bill would also extend the tax deductibility of mortgage insurance.
H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007, was unanimously approved by the House Committee on Ways and Means, according to an announcement.
The bill, supported by the National Association of Home Builders, the Mortgage Bankers Association and the National Association of REALTORS, would eliminate income taxes on deficiency balances forgiven by a lender after a foreclosure on a primary residence, the statement explained.
"The legislation advanced by the committee today would provide relief to those families by permanently excluding debt forgiven under these circumstances from tax liability," the committee's statement said.
A summary of the bill indicated this aspect of the bill would cost U.S. taxpayers around $1.4 billion over the next decade.
President Bush said last month he was proposing a temporary change to the tax code to stop taxing deficiency balances.
"Allowing the exclusion of forgiven mortgage debt from gross income calculations will stop the unfortunate outcome of taxing phantom income for distressed borrowers, thus removing a penalty for consumers seeking this help from their mortgage lenders," said MBA Chairman John M. Robbins in a statement today.
The bill would also reportedly provide a seven-year extension for the deductibility of mortgage insurance and ease restrictions for qualifying as housing cooperative corporations. The combined cost of these two proposals is estimated at nearly $600 million over the next 10 years.
But the bill would increase capital gains taxes on the sale of vacation and rental properties -- though this is expected to boost tax revenues by $2 billion over the next decade.