A comprehensive tax bill that reinstates protections for distressed homeowners shielding them from having to pay taxes on mortgage debt forgiven in 2014 is headed for President Obama’s desk.
The tax break on forgiven mortgage debt, and another allowing homeowners to deduct mortgage insurance premiums, was one of 55 provisions in the Tax Increase Prevention Act passed Tuesday in a 76-16 Senate vote.
The House passed the bill 387 to 46 on Dec. 3, and Obama is expected to sign the bill into law, enabling the tax break retroactively through Dec. 31 of this year.
The Mortgage Forgiveness Debt Relief Act of 2007 was created in the aftermath of the housing bust, with the intention of protecting homeowners who lose their home in a short sale or deed-in-lieu of foreclosure from the double whammy of a whopping tax bill.
Before the exemption was created by Congress, if a lender agreed to let a homeowner with $400,000 in mortgage debt sell their house for $300,000, the IRS would treat the remaining $100,000 of forgiven mortgage debt as income.
The House and Senate extended the tax break on forgiven mortgage debt in 2009 and 2012, but it lapsed at the end of 2013.
More than 800,000 homeowners have claimed the tax break, National Mortgage News reports, citing Rep. Charles Rangel, the New York Democrat who was a sponsor of the original bill.
In the first eight months of this year, loan servicers working for Fannie Mae and Freddie Mac signed off on just 27,800 short sales, down from 125,232 in 2012, National Mortgage News said.
