Second Home Owners Hit By Unexpected Blow

by Mike Godfrey, Tax-News.com, Washington

27 September 2007

Those owning second homes are likely to suffer as the result of new legislation designed to cut the crippling burden of tax upon homeowners, it has emerged.

There has been much criticism in recent months about the way in which the US government is handling taxes on homeowners - particularly in cases where foreclosure is concerned.

Only last week Members of the US Senate Finance Committee were urging the US Treasury Department and Internal Revenue Service to take action to ensure that working families who lose their homes to foreclosure face more reasonable, accurate tax bills for their home loan debt forgiveness.

President Bush also spoke out on the issue. He proposed that cancelled mortgage debt on a primary residence should not be treated as income, stating that: “When your home is losing value and your family is under financial stress, the last thing you need to do is to be hit with higher taxes.”

A bill approved this week by the Ways and Means Committee, the House's tax-writing panel, now states that homeowners facing foreclosure won't get stuck with a tax bill if part of their debt is forgiven by lenders. Currently, forgiven debt is treated as income to the borrower and is subject to tax.

However, in order to offset the costs of this, Democrats have proposed toughening the tax treatment of vacation homes and other second residences, by preventing them from excluding as much as is presently possible from CGT when the property is sold.

This new provision is expected to raise $2 billion over the next ten years.

The legislation will now go before the full House for consideration.

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