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Bill OKd to spare taxes on forgiven mortgage debt

December 19, 2007|From Bloomberg News

Congress passed legislation Tuesday to protect mortgage borrowers from getting a surprise tax bill when they restructure their loans to avoid foreclosure.

The House adopted legislation passed by the Senate last week to spare homeowners for three years from taxes as high as 35% on canceled mortgage debt.

"Homeowners who restructure their mortgages to avoid foreclosure should not be hit with a tax bill as a result," Treasury Secretary Henry M. Paulson Jr. said. "This legislation will temporarily exclude homeowners who have restructured their mortgage loans from having to pay taxes on the mortgage debt forgiven."

Under current law, any forgiven mortgage debt is taxable as income. The measure approved Tuesday would waive taxes for such debt forgiven from Jan. 1, 2007, to Dec. 31, 2009.

The $1-billion cost of the bill will be offset by raising penalties on partnerships and small businesses that fail to file tax returns.

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