WashingtonWatch.com - P.L. 110-142, To amend the Internal Revenue Code of 1986 to exclude discharges of indebtedness on principal residences from gross income, and for other purposes

Comment by Julie (July 3, 2008, 01:00:00)

Thu, 03 Jul 2008 00:00:00 EDT

I lost my job back in September and my unemployment has run out. I am now at a point I will not be able to make my house payment. Am I one of those people who shouldn't have bought and now wanting a "bail out", I think not. I bought my house knowing fully what was in store for me, who would've thought that the job market would be going sour as well as the real estate market. I also need to know since I refinance 2 years ago with no money out, will I be taxes on that difference when I go through the short sale?...

Comment by R.C. (May 16, 2008, 01:00:00)

Fri, 16 May 2008 00:00:00 EDT

Okay, as a consumer I took on more then I could chew I guess and Im sure I will now pay, but can someone please help by providing your education on 1.) If because I refinanced and didn't use the money towards my home, will this change the nature of my debt and will the debt relief Act.act in my favor? or against me? "Meaning" what am I going to be responsible for if I qualify for a Short Sale?...

Comment by Daniel S (May 9, 2008, 01:00:00)

Fri, 09 May 2008 00:00:00 EDT

Hey Larry, in business you take risks. Some fail and you lose money. Making loans involves risk. So, who is asking for the bailout here?!...

Comment by Larry (April 19, 2008, 01:00:00)

Sat, 19 Apr 2008 00:00:00 EDT

Hey Daniel, I would be greatly relieved if I didn't have to pay taxes on the $100k too, but your situation is a little different. No, I haven't had to relocate to do a tour in Iraq or anywhere else (thank you for your service), but that doesn't mean that I don't have a heart! For every issue we can come up with at least one hardship such as yours. The problem lies in the fact that too many people are not fiscally responsible. For every one in your circumstance there are probably 20 who feel that Uncle Sam should bail them out for a bad decision so they can go and repeat it again. I will pray for your safe return from Iraq. God Bless you and your family!...

Comment by DENISE (April 4, 2008, 01:00:00)

Fri, 04 Apr 2008 00:00:00 EDT

Can anybody tell me with the Debt Relief Act of 2007 if a person has to physically live in their home or just technically own and have it as their mailing address for two years? I am going to lose my home to foreclosure. I want to leave my home as soon as I can so the bank can do with it what they will. I just don't know when I can do that without putting myself in a worse financial situation by having to pay taxes on phantom income. My 2 years are up on April 25th....

Comment by Daniel (March 23, 2008, 01:00:00)

Sun, 23 Mar 2008 00:00:00 EDT

I just did a short sale, closed last week. I found out today that I would not have to pay tax on the 100 grand of debt that was relieved...And am very relieved. I understand where you are coming from Larry, but have you ever been in a position where you were 125k upside down on your house in the second year you owned it and on top of that, were being moved to to North Carolina enroute to a 15 month tour in Iraq? Have a heart buddy....

Revision by webmaster (January 11, 2008, 01:00:00)

Fri, 11 Jan 2008 00:00:00 EST

H.R. 3648 would amend the Internal Revenue Code of 1986 to exclude discharges of indebtedness on principal residences from gross income.

Detailed Summary

<b>(This measure has not been amended since it was passed by the Senate on December 14, 2007. The summary of that version is repeated here.)</b>

Mortgage Forgiveness Debt Relief Act of 2007 - Amends the Internal Revenue Code to exclude from gross income amounts attributable to a discharge, prior to January 1, 2010, of indebtedness incurred to acquire a principal residence. Limits to $2 million the excludable amount of such indebtedness. Reduces the basis of a principal residence by the amount of discharged indebtedness excluded from gross income. Disallows an exclusion for a discharge of indebtedness on account of services performed for the lender or any other factor not directly related to a decline in the value of the residence or to the financial condition of the taxpayer. Sets forth rules for determining the allowable amount of the exclusion for taxpayers with nonqualifying indebtedness and taxpayers who are insolvent.

Extends through 2010 the tax deduction for mortgage insurance premiums.

Sets forth alternative tests for qualifying as a cooperative housing corporation for purposes of the tax deduction for payments to such corporations. Qualifies a corporation if: (1) 80% or more of the total square footage of the corporation's property is used or available for use by its tenant-stockholders for residential purposes, or (2) 90% of the corporation's expenditures are for the acquisition, construction, management, maintenance, or care of its property for the benefit of the tenant-stockholders.

Allows members of a qualified volunteer emergency response organization (i.e., an organization that provides firefighting and emergency medical services) an exclusion from gross income for state and local tax benefits and for certain payments for services. Terminates such exclusion after 2010.

Allows certain full-time students who are single parents and their children to live in housing units eligible for the low-income housing tax credit provided that their children are not dependents of another individual (other than a parent of such children).

Allows a surviving spouse to exclude from gross income up to $500,000 of the gain from the sale or exchange of a principal residence owned jointly with a deceased spouse if the sale or exchange occurs within two years of the death of the spouse and other ownership and use requirements have been met.

Increases the penalty for failure to file a partnership tax return and extends from five to 12 the number of months in which such penalty may be imposed. Limits disclosure of tax return information that includes individual taxpayer identify information.

Imposes an additional penalty on S corporations for failure to file required tax returns.

Amends the Tax Increase Prevention and Reconciliation Act of 2005 to increase the estimated tax payment due in the third quarter of 2012 for corporations with assets of at least $1 billion.

Status of the Legislation

Latest Major Action: 10/4/2007: Referred to Senate committee. Status: Received in the Senate and Read twice and referred to the Committee on Finance.

Points in Favor

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Points Against

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Comment by Larry (December 27, 2007, 01:00:00)

Thu, 27 Dec 2007 00:00:00 EST

This law is rediculous! So, those who bought too much house, on too little credit, and extended themselves too far on the shortsightedness that the housing market would continue to grow now don't want a tax on the aid that someone else gives them??? If someone relieves debt against you that is the same as giving you cash. ie. taxable income. Where is the consumer responsibility? Or is that too much to ask for anymore? We are so use to thinking that everyone is a victim that we forget that they made a decision. An ill-informed decision is still your decision. Take your lumps and learn from it!!...

Comment by DH (December 26, 2007, 01:00:00)

Wed, 26 Dec 2007 00:00:00 EST

HR 3648 Passed. It is now a law. 110-142. Speaking as someone about to do a short sale...I am ECSTATIC. Speaking as an American living in the current economy it raises a question...If the delta from what I owe compared to what the house short sells for is $100,000...who is making up that difference if I no longer receive a 1099 on it? The money has to come from somewhere....

Comment by Charlie (December 20, 2007, 01:00:00)

Thu, 20 Dec 2007 00:00:00 EST

As someone facing the possibility of deed-in-lieu-of-foreclosuer right now, this would be a Godsend. To call a forgiven debt income is among the stupidest, most innae things I have ever heard in my life. It needs to be stopped, and it needs to be removed. Immediately. If people can't pay their mortgages, what makes you think they can pay a possibly tens of thousands of dollars in tax bill? Madness in its purest form....

Comment by FrankO (November 29, 2007, 01:00:00)

Thu, 29 Nov 2007 00:00:00 EST

Taxes on phantom income is rediculous. I can understand if there is a distint difference in a home owner who took cash out on equity, then performed a short sale... but even so it would already be considered a recourse loan and the Lender can still go after the borrower for any/all losses. Compare that to a homeowner who is forced to either short sale and can no longer get the price they paid for or value dropped below the equity from the down payment. An additional issue at hand is, a lender gets to double dip: Lender gets to credit the losses as a loss in business AND also send a 1099 to the borrower as an expense. This is what you call unfair tax laws for business vs the individual. Either way you look at it, this needs to be passed....

Comment by hdude (November 26, 2007, 01:00:00)

Mon, 26 Nov 2007 00:00:00 EST

Why don't they offset the tax free gain with any deductions previously taken for taxes. Seems more fair to me....

Comment by Jim V (November 12, 2007, 01:00:00)

Mon, 12 Nov 2007 00:00:00 EST

It seems like this law is designed to do what we already have in CA. As I understand it, whether there is a gain hinges on whether or not the debt that is being forgiven is “non- recourse.” Non-recourse debt in California generally refers to debt that was used to purchase your home. Refinancing and borrowing amounts against your home that are used for other purposes could change the nature of the debt so that it becomes recourse debt. However, debt cancellation of recourse indebtedness such as money borrowed agains t your home to buy a car, will result in taxable income regardless....

Comment by Grant Winslow (October 26, 2007, 01:00:00)

Fri, 26 Oct 2007 00:00:00 EDT

The way that I interpret the bill, if you had moved into your rental and it was your primary residence for at least 5 years, then you will be able to deduct the full amount available; ie $250K if single, or $500K if married....

Revision by webmaster (October 12, 2007, 01:00:00)

Fri, 12 Oct 2007 00:00:00 EDT

H.R. 3648 would amend the Internal Revenue Code of 1986 to exclude discharges of indebtedness on principal residences from gross income.

Detailed Summary

Mortgage Forgiveness Debt Relief Act of 2007 - Amends the Internal Revenue Code to exclude from gross income amounts attributable to a discharge of indebtedness incurred to acquire a principal residence. Limits to $2 million the excludable amount of such indebtedness. Reduces the basis of a principal residence by the amount of discharged indebtedness excluded from gross income. Disallows an exclusion for a discharge of indebtedness on account of services performed for the lender or any other factor not directly related to a decline in the value of the residence or to the financial condition of the taxpayer. Sets forth rules for determining the allowable amount of the exclusion for taxpayers with nonqualifying indebtedness and who are insolvent.

Extends through 2014 the tax deduction for mortgage insurance premiums.

Limits the exclusion from gross income of gain from the sale of a principal residence by denying an exclusion of the gain that is allocable to a nonqualified use of such residence (i.e., use other than as a principal residence).

Amends the Tax Increase Prevention and Reconciliation Act of 2005 to increase to 116.75% the estimated tax rate in the third quarter of 2012 for corporations with assets of not less than $1 billion.

Status of the Legislation

Latest Major Action: 10/4/2007: Referred to Senate committee. Status: Received in the Senate and Read twice and referred to the Committee on Finance.

Points in Favor

(Log in to edit the wiki and be the first to show why the bill should pass!)

Points Against

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Revision by webmaster (October 10, 2007, 01:00:00)

Wed, 10 Oct 2007 00:00:00 EDT

H.R. 3648 would amend the Internal Revenue Code of 1986 to exclude discharges of indebtedness on principal residences from gross income.

Detailed Summary

(Log in to edit the wiki and be the first to provide a detailed summary of the bill!)

Status of the Legislation

(Log in to edit the wiki and be the first to update the status of the bill!)

Points in Favor

(Log in to edit the wiki and be the first to show why the bill should pass!)

Points Against

(Log in to edit the wiki and be the first to show why the bill should not pass!)

Revision by webmaster (October 10, 2007, 01:00:00)

Wed, 10 Oct 2007 00:00:00 EDT

H.R. 3648 would amend the Internal Revenue Code of 1986 to exclude discharges of indebtedness on principal residences from gross income.

Detailed Summary

(Log in to edit the wiki and be the first to provide a detailed summary of the bill!)

Status of the Legislation

Latest Major Action: 10/4/2007: Referred to Senate committee. Status: Received in the Senate and Read twice and referred to the Committee on Finance.

Points in Favor

(Log in to edit the wiki and be the first to show why the bill should pass!)

Points Against

(Log in to edit the wiki and be the first to show why the bill should not pass!)

Revision by webmaster (October 10, 2007, 01:00:00)

Wed, 10 Oct 2007 00:00:00 EDT

H.R. 3648 would amend the Internal Revenue Code of 1986 to exclude discharges of indebtedness on principal residences from gross income.

Detailed Summary

Mortgage Forgiveness Debt Relief Act of 2007 - Amends the Internal Revenue Code to exclude from gross income amounts attributable to a discharge of mortgage indebtedness on a principal residence. Reduces the basis of such principal residence by the amount excluded from gross income. Disallows an exclusion for a discharge of indebtedness on account of services performed for the lender. Sets forth rules for determining the allowable amount of the exclusion for taxpayers with nonqualifying indebtedness and who are insolvent.

Extends through 2014 the tax deduction for mortgage insurance premiums.

Amends the Tax Increase Prevention and Reconciliation Act of 2005 to increase to 116.75% the estimated tax rate in the third quarter of 2012 for corporations with assets of not less than $1 billion.

Status of the Legislation

Latest Major Action: 10/4/2007: Referred to Senate committee. Status: Received in the Senate and Read twice and referred to the Committee on Finance.

Points in Favor

(Log in to edit the wiki and be the first to show why the bill should pass!)

Points Against

(Log in to edit the wiki and be the first to show why the bill should not pass!)

Comment by Tom Tillman (October 7, 2007, 01:00:00)

Sun, 07 Oct 2007 00:00:00 EDT

There are tens of 1000's of foreclosures and short sales that will owe tax on these Phantom gains. This "kick 'em while they're down" law is among the most unfair and suppressive tax laws ever to be passed. Tax on a gain you never recieved?? This is another reason the IRS should be abolished and the fairtax proposal passed. (www.fairtax.com) then, we wouldn't have to fight this and dozens of other IRS insanities....

Comment by Professor Rydstrom, Esq. (October 5, 2007, 01:00:00)

Fri, 05 Oct 2007 00:00:00 EDT

For the debate / all sides: What is our goal? Do we want to enhance economic growth and enhance homeownership at the same time, or not? The bottom line is we must make law to lessen the "extent" of the negative mortgage fallout that will enhance growth, for the benefit of OUR economy and society. Forgiveness of debt amounts should not be limited to a dollar certain, leaving the homeowner with a 'partial overload of debt they can't afford', nor should the law be blind to certain circumstances which include relief for second homes, etc. In high value areas, caps on exclusions will fall far short of supplying relief. Those taxpayers will be driven closer to insolvency, and become less effective in society. Comprehensive Solutions to the Mortgage Meltdown: White Paper: http://www.helphomeowners.org/Helping_Homeowners_Keep_Their_Homes_FINAL1a.pdf rrydstrom@gmail.com...

Comment by Frank Remudo (October 5, 2007, 01:00:00)

Fri, 05 Oct 2007 00:00:00 EDT

Must of these 2/28 and 3/27 ARM in line to foreclosure now, have given primary occupanccy for two of the last five years to families that are excluded to pay any taxes on gains above 250K (S) or 500K (H&W). Any forgiveness of indebtness in the sale of the property is to be treated as gain in the sale of the property. Then their come our politians trying to prevent a monster that dose not exist and pop the idea to create a new bill to SHOW THAT WE ARE DOING SOMETHING when in fact there are very few foreclosees that will owe a penny to the IRS. They better keep the things running and wait to see if really so many families will be hit and then ACT....

Status as of October 4, 2007

Thu, 04 Oct 2007 00:00:00 EDT

10/4/2007: Referred to Senate committee. Status: Received in the Senate and Read twice and referred to the Committee on Finance.

Status as of October 4, 2007

Thu, 04 Oct 2007 00:00:00 EDT

10/4/2007: Referred to Senate committee. Status: Received in the Senate and Read twice and referred to the Committee on Finance.

Comment by Sean Olender (October 3, 2007, 01:00:00)

Wed, 03 Oct 2007 00:00:00 EDT

This gains exclusion was wrong from its inception. Income is heavily taxed plus payroll taxes. That a homeowner can be earning capital gains ON 2 PROPERTIES SIMULTANEOUSLY 100% tax free up to $500K on each (if married) is obscene. It's up to $1 mil in gains in 4 years with ZERO state/federal tax! 100% of interest on a CD carries state and federal INCOME tax. Stock/dividend gains carry 15% tax... an INCREDIBLE misallocation of investment to RE from stupid tax benefits. 2 bed shacks selling for $700,000 in San Jose because of the tax breaks. It benefits no one except banks and RE agents. The misplaced capital is better spent on production: factories, infrastructure. America used to make things and sell them to people. Now we trade houses and borrow HUGE money from foreigners to buy foreign products. We don't need more subsidies to mal-investment. We need to return America to producing something other than leveraged debt....

Comment by Matt Napier (October 3, 2007, 01:00:00)

Wed, 03 Oct 2007 00:00:00 EDT

RE Agents aren't particularly affected by the changes in section 4 of HR 3648 (they sell homes, and don't necessarily own or invest in them), only owners of homes in the situations I have listed in my above remarks, or investors. These tax breaks have little to do at all with the condition of real estate prices. Real estate prices were/are over-inflated in certain areas because of loose lending standards (no doc./liar loans), money being taken out of the stock market and put into real estate around 2001 and after, and supply and demand, which also includes speculators and investors....