House Overwhelmingly Passes Mortgage Tax Relief Bill
New bill carries seven-year extension of private mortgage insurance (PMI) deductions and modifies the qualification tests for cooperative housing corporations.
October 15, 2007
Sponsored by BNA Tax Management
by Heather M. Rothman, BNA Tax Management
On October 4, the House voted 386 to 27 to pass legislation (H.R. 3648) that would permanently exclude from income, debt, forgiven as a result of a mortgage foreclosure or renegotiation.
The bill passed despite Republican concerns over the main offset, which would tighten requirements taxpayers must meet to exclude gain from the sale of certain homes that have been used as a vacation home or rental property.
A similar bill (S. 1394) is pending before the Senate. While the House bill provides retroactive relief to January 1, 2007, the Senate bill would take effect upon enactment. At press time, it was unclear when the Senate would vote on the legislation.
The Bush administration October 3 expressed support for the legislation, but said it would work to narrow the scope of the $2 billion bill. The White House would like to see the measure scaled back to a three-year exclusion that is designated an emergency and therefore not subject to congressional pay-as-you-go rules.
According to the Statement of Administration Policy, permanent relief is not necessary because the tax code “already protects people who are insolvent or whose debt has been discharged in bankruptcy from having to pay tax when debt is cancelled.”
PMI Deduction Extension, Other Changes
In addition to helping financially strapped taxpayers by shielding mortgage write-offs from taxation, the bill carries a seven-year extension of the deduction for private mortgage insurance (PMI) and also would modify the qualification tests for cooperative housing corporations.
Lawmakers opted to pay for the bill by tightening the requirements taxpayers must meet to exclude gain from the sale of certain residences, such as vacation homes and rental properties that eventually are converted into primary residences and then sold.
Representative Eric Cantor (R-Va.) offered a motion to recommit that would have struck the two offsets included by Democrats to keep the legislation revenue neutral, but his motion was defeated by a vote of 201 to 212.