President Signs Into Law 3-Year Suspension Of Taxability Of Mortgage Debt Cancellation Income On Foreclosure & Short Sales

The Associated Press reports:

• U.S. President Bush on Thursday signed a measure to provide financial relief for financially strapped homeowners facing foreclosure or in bankruptcy. The bill gives a tax break to homeowners who have mortgage debt forgiven as part of a foreclosure or renegotiation of a loan. No taxes would be owed on the value of any debt forgiven or written off. Currently such debt forgiveness is taxable income. "When you're worried about making your payments, higher taxes are the last thing you need to worry about," Bush said in a bill-signing ceremony. He stood along side members of his Cabinet and lawmakers who pushed the measure.

For more, see Bush comes to aid of homeowners.

See also IRS Publication 4681: Canceled Debts, Foreclosures, Reposessions and Abandonments.

According to a Fact Sheet issued by the White House, "This Act [The Mortgage Forgiveness Debt Relief Act of 2007] will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. Under current law, if the value of your house declines, and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as income that can be taxed." short sale income tax