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Mortgage debt forgiveness plan heading to President
WASHINGTON (12/20/07)--The House Tuesday passed the "Mortgage Forgiveness Debt Relief Act" (H.R. 3648). The bill is identical to the bill the Senate passed late last week to provide temporary tax relief to homeowners who might lose their home to foreclosure or who negotiate a loan modification. President Bush is expected to sign the bill. On Dec. 6, as part of an administration plan to provide relief to subprime borrowers, the president urged Congress to "temporarily reform the tax code to help homeowners refinance during this time of housing market stress." Under current law, if the lender--voluntarily or involuntarily--forgives a portion of a borrower's mortgage debt, the tax code treats the amount forgiven as taxable income. Credit unions and other lenders are required to file Form 1099-C, "Cancellation of Debt," to report to the Internal Revenue Service any debt of $600 or more cancelled or forgiven. H.R. 3648 will allow the discharge of indebtedness on loans up to $2 million and secured by the borrower's principal residence not to trigger federal income taxation. The bill would only cover discharges made between Jan. 1, 2007 and Dec. 31, 2009. "Even though this bill, when signed by the president, will be retroactive to the beginning of the year, credit unions that have already filed 1099-C forms relating to home loans shouldn't feel they have to file amended returns. "We assume that the IRS will release some guidance on how to handle information returns in these situations for this temporary period," noted Kathy Thompson, SVP for Compliance for the Credit Union National Association. However, it should be noted that the Act does not impact a credit union's responsibility to file the 1099C forms when a discharge of indebtedness of $600 or more has occurred, she added. H.R. 3648 includes a number of unrelated tax provisions, most of which are included to help cover the cost of this tax relief. One provision provides a three-year extension of the personal tax deduction for the cost of private mortgage insurance premiums.
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