Mortgage Forgiveness Debt Relief Act of 2007

If a mortgage lender forgives debt as part of a short sale or foreclosure or what have you, they send the IRS a 1099 with the amount forgiven. At tax time you are obligated to report this forgiven mortgage debt as 1099 income. This amount is then taxed as ordinary income. So, not only are you having a hard time with losing your home, Uncle Sam wants to pile on a bit.

It appear the government has a change of heart. Awwwwwww……

The US House moved closer towards eliminating this tax on forgiven debt. Here is an excerpt from Square Feet Blog:

The House Ways and Means Committee — where federal tax legislation typically starts — unanimously approved the Mortgage Forgiveness Debt Relief Act of 2007 (H.R.‚3648). As the title implies, the primary goal of the proposed legislation is to buffer homeowners who currently face an unwelcome tax bill when lenders forgive some of their loans.

The push for such relief has two important backers: President Bush, who called on Congress to provide help last month, and Ways and Means Committee Chairman Charles B. Rangel, who calls the tax hit a “double whammy’ for people who already are losing their homes.

This tax forgiveness is allowed only on primary residences.

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