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US Senate Approves Mortgage Tax Relief

by Leroy Baker,, New York

19 December 2007

Senate Finance Committee Chairman Max Baucus (D-Mont.) won passage on Friday of legislation offering tax relief to American families caught in the subprime mortgage crisis.

When debt is forgiven on a home loan, the homeowner must normally count that debt forgiveness as income and pay taxes on it. The bill approved last week as an amendment to House legislation creates a three-year exception for debt forgiveness on home loans – helping families already unable to meet their mortgages to avoid incurring large tax bills as well. The bill also extends a provision allowing homeowners to deduct mortgage insurance payments from their taxable income.

“Homeowners who are already in trouble on the mortgage certainly can’t afford a big hit from the tax man too,” commented Baucus. He continued: “Upheaval in the housing market has turned the world upside down for far too many families, and Congress needs to help these folks climb out of a financial hole. This mortgage tax bill will help to ease the burdens of homeowners who are hurting today."

The measure was also supported by the leading Republican on the Finance Panel, Chuck Grassley.

“Many Americans are facing real financial difficulties because of increased mortgage payments," Grassley, lead sponsor of the legislation approved on Friday, stated.

He added: "These families are confronting the reality of defaulting and losing their home or working with lenders to reduce the loan amount. As these families struggle to reduce their home loan debt, they’re hit by taxes due to debt forgiveness from the lender. It’s right to offer them tax relief. I hope it will help them keep their homes. I also hope it’ll help the nation recover from the housing decline over the next three years and get this part of the economy back on track. I look forward to fast enactment of this provision.”

In addition to tax relief for debt forgiveness and mortgage insurance payments, the bill includes: tax relief for volunteer firefighters and emergency medical technicians; help to expand housing options for college students with children; protection of tax relief for homeowners after the death of a spouse; and flexibility to help co-op tenant/owners deduct real estate taxes and mortgage insurance.

The bill is fully offset by increased penalties for failure to file S corporation returns or partnership returns, and new requirements for the payment of corporate estimated taxes. It is now necessary for the House to pass the updated legislation and send it to the President for signature.

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