From San Francisco Apartment Association
Forgiven debt does not count as income and should not be taxed as such, according to legislation passed overwhelmingly by the U.S. House of Representatives. Before this bill, forgiven debt was treated as income and subject to tax. The legislation is a response to the subprime lending crisis and would save homeowners an estimated $650 million in taxes over the next three years, and $1.38 billion in the next decade. The proposed legislation also extends the income tax deduction for private mortgage insurance through December 31, 2014. A temporary version of the deduction is set to expire at the end of this year. The bill is backed by the National Association of Home Builders, the Mortgage Bankers Association and the National Association of Realtors. The bill was approved by a vote of 386 to 27 and now moves on to the Senate. The White House said it supports the bill, but only if the tax break is temporary, rather than a permanent change to tax code, adding that the change is only needed during the current “transition period” and that the code already addresses the needs of “the most financially stressed mortgage borrowers.” The administration also objects to a provision in the bill that would make it more difficult to claim a second home as a primary residence and therefore get valuable capital gains deductions after its sale. This change is estimated to raise $2 billion in taxes during the next 10 years.