The House has again passed the Mortgage Forgiveness Debt Relief Act, an effort to help people whose homes have been foreclosed by canceling taxes on any mortgage debt they have been forgiven.
The bill amends current law, which requires taxpayers to include discharges of mortgage indebtedness as income and to pay tax on this income. It provides a three-year exclusion for discharges of up to $2 million of indebtedness.
In addition, the bill provides a three-year extension of the tax deduction for private mortgage insurance. It also eases the restrictions for qualifying as housing cooperative corporations.
Treasury Secretary Henry Paulson praised the bill, while pointing out that more needs to be done. "Today's legislation is one piece of a larger plan the president has put forward to help able homeowners avoid foreclosure," he said in a statement. "I'm also eager to see final congressional action on the other pieces, including GSE and FHA reform and allowing state and local authorities more tax-exempt bond authority to help homeowners refinance their existing loans. Preventing avoidable foreclosures will reduce the impact of the housing slowdown on homeowners, our communities and our economy."
When the House first passed the bill in October, it provided a permanent exclusion from taxing forgiven mortgage debt. It also tightened the requirements that taxpayers would have to meet to exclude the gain from the sale of residences such as residences and vacation property. But those provisions were eliminated in the Senate, which added other amendments.
To pay for the $1.15 billion bill, it includes offsets such as penalties for failure to file S corporation or partnership returns, with an $85-per-shareholder monthly penalty, for up to 12 months. The bill also increases the amount of corporate estimated tax payments due in 2012 by 1.5 percentage points. The bill now goes to the president for his signature.
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