Industry News

Bill would kill tax on ‘phantom income’ from foreclosures, workouts

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A bill that would give homeowners facing foreclosure a tax break when lenders forgive part of their debt would make up for lost revenue by collecting more capital gains taxes on the sales of some second homes claimed as primary residences. HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007, would eliminate a provision of the tax code that allows the IRS to tax debt that's forgiven as part of a foreclosure or loan modification as income. That change -- which is backed by the Bush administration -- would reduce tax revenues by an estimated $1.38 billion over 10 years. HR 3648 would also extend the deduction for private mortgage insurance -- scheduled to end this year -- to 2014, at a cost of $570 million over a decade, and relax qualification tests for cooperative housing corporations, resulting in another $22 million in lost tax revenue. To make up for the bill's $1.97 billion impact on tax revenue over the next decade, it would also tighten the rules for counting a second home,...