President Bush signed legislation today that will protect struggling homeowners from being hit by taxes tied to mortgage debt that has been forgiven by a bank or mortgage lender.
The so-called Mortgage Forgiveness Debt Relief Act of 2007, or bill HR 3648, amends current law that requires homeowners to treat forgiven mortgage debt as taxable income.
“Today’s bill will ensure that any debt forgiven on a mortgage secured for a principal residence will not be taxed. This is very significant legislation. This may also mean that some day in the future these families can once again achieve the dream of homeownership,” Bush said in a statement.
The measure offers a tax break to homeowners who have some portion of their mortgage debt forgiven through foreclosure or as a result of a loan renegotiation.
It provides a three-year exclusion for discharges of up to $2 million in debt and is expected to reduce the taxes of strapped homeowners nationwide by $650 million.
“When you’re worried about making your payments, higher taxes are the last thing you need to worry about,” Bush said during the bill-signing ceremony.
“This is going to make a happy holiday for many homeowners,” Bush said of the bill just before signing it into law.
In addition, the bill extends a tax provision that allows homeowners to deduct the cost of mortgage insurance premiums from their federal income tax returns until 2010.