The U.S. Senate approved legislation last month eliminating all taxes homeowners may face when renegotiating the terms of their home loans as well as forgiving a portion of outstanding mortgage debt.
This tax law amendment, which applies only to principal residences, will cap un-taxable forgiven mortgage debt at $2 million.
Brian Catalde, president of the National Association of Home Builders, said he is in strong support of the newly approved bill.
“This legislation will play a central role in helping American families avoid foreclosure and stay in their homes,” Catalde said.
Current tax rules under Section 108 of the Internal Revenue Code have homeowners afraid to risk the forgiven mortgage debt taxed as ordinary income incurred during reconstruction, and are often forced into foreclosure.
S. 1394, the Mortgage Cancellation Relief Act of 2007, would remove this tax burden on mortgage indebtedness, encourage market-based restructuring between lenders and home owners and discourage foreclosures, Catalde explained.