Dec
29
Bush signs mortgage debt forgiveness law
December 29, 2007 |
It’s official, President Bush signed into law today a new measure giving tax breaks to homeowners who have mortgage debt forgiven. Under preexisting law, the debt forgiven by a lender, such as for short sales and refinances, was generally taxable to the borrower as debt discharge income. With the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer does not have to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence.
This tax break applies to debts discharged from January 1, 2007 to December 31, 2009. Qualified principal residence indebtedness is debt incurred in acquiring, constructing, or substantially improving the residence (up to $2 million for refinances).
The Mortgage Forgiveness Debt Relief Act of 2007 is available at http://www.govtrack.us/congress/bill.xpd?bill=h110-3648.
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While borrowers welcomed this news with audible relief, lenders are in no way enjoying. The economy however, sees some hope for the real estate industry with the Bush decision to have mortgage debt forgiven.
I don’t see this as good. Other folks who are relieved of debt from credit cards, business loans, etc. will still have to pay income tax on “phantom” income or debt forgiveness. Either you get rid of that provision altogether or everyone pays. It isn’t equitable that one group of folks get preferential treatment.