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Mortgage Forgiveness Debt Relief Act of 2007

On September 25, 2007 Chairman of the House Ways & Means Committee, Rep. Rangel (D-NY) introduced his own mortgage cancellation relief bill, H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007. H.R. 3648 would remove taxes from mortgage cancellation relief provided on a mortgage on a primary residence. The tax relief would apply to the original purchase price, plus personal improvements of a primary residence and would not cover any amount over the original purchase price if a loan has been refinanced with a “cash out” option. The relief would also only apply to first mortgages, not second mortgages or home equity lines of credit. The relief would apply to any forgiveness given on or after January 1, 2007. H.R. 3648 passed the House on October 4^th by a vote of 386-27.

This provision will help cover many struggling homeowners. This isn’t only about those who are suffering through subprime or predatory loans. This helps the homeowner who is struggling because of health issues, loss of a job, or another traumatic event which forces them to have to sell their house for less then they purchased it for. Since Congress is under PAYGO rules, to offset the loss in revenue they modified the rules concerning the conversion of a second home to a primary residence. The capital gains exemption of $250,000/$500,000 is still allowed, but under H.R. 3648 the exemption only qualifies for the time when the house was a primary residence, which was the original intent of Congress. This rule will not be retroactive and will not count against any gain prior to January 1, 2008.