Washington, D.C., October 4, 2007 — Congresswoman Shelley Berkley (D-NV) today voted in favor of legislation that seeks to aid Nevada homeowners who could face hefty tax bills as a result of a foreclosure or renegotiating a bad loan. The House overwhelmingly passed H.R. 3648, The Mortgage Forgiveness Debt Relief Act of 2007, on a vote of 386 to 27 in response to the tax issues that have arisen as a result of problems in the subprime mortgage market. The legislation eliminates the foreclosure tax, which can affect those who have debt forgiven during a home loan renegotiation or who lose a house in foreclosure.
“This bipartisan bill represents an important step in helping homeowners in Nevada and across the nation who have been caught up in the recent housing crisis. Unfortunately, many of those who lose their homes to foreclosure also face an added tax bill and this legislation will shield families from this additional burden. Sadly, Nevada has the highest foreclosure rate in the nation, so anything we do in Congress to provide relief from additional taxes will help families in Las Vegas and around the Silver State. By eliminating the foreclosure tax, we can eliminate one more concern faced by families already struggling to keep a roof over their heads,” said Berkley.
“This legislation will remove the added threat of a large tax bill from the list of concerns faced by those who are already dealing with a foreclosure or renegotiation of a loan. By forgiving this tax liability, we will be helping those Americans who are suffering the most as a result of the downturn in the housing market and increasing loan costs,” said Berkley, who sits on the powerful House Ways and Means Committee where H.R. 3648 originated.
Under current law, debt that is forgiven following mortgage foreclosure or renegotiation is considered income for tax purposes, resulting in tax liability for individuals and families. As a result, individuals who lose a home to foreclosure can end up owing income tax if the home is valued at less than is owed at the time of foreclosure. Under this scenario, the difference between the home’s current value and the amount owed is considered “forgiven debt” and is counted as income. Alternately, a homeowner can face the same problem if a lender agrees to lower the amount of principal owed during a refinance, in order to avoid foreclosure.
The Berkley-backed legislation would provide relief to qualified homeowners in Las Vegas and nationwide by permanently excluding debt forgiven under these circumstances from tax liability. The bill would also help would-be homeowners to secure their investments through a long-term extension of the tax deduction for private mortgage insurance, and would ease restrictions for qualifying as housing cooperative corporations. Finally, the bipartisan bill would tighten requirements taxpayers must meet to exclude gain from the sale of certain homes that have been used as a vacation home or rental property.