Last Friday, the House passed a bill which will reduce the amount of tax due on mortgage debt forgiven during foreclosure or while in bankruptcy. Currently, taxpayers must pay tax on this amount as it is considered income. It’s really “phantom income:” income that’s taxable but not spendable.
The bill, H.R. 3648, is currently a permanent measure but the White House wants to limit it to three years, according to the Washington Post.
What does this mean to the average taxpayer? Not much. According to RealtyTrac, almost 500,000 foreclosures were filed in the first quarter of 2007. Even if the same number filed each quarter this year, we’re looking at 2 million foreclosures out of 75 million households, per the U.S. Census.
Still, families that filed for bankruptcy in 2007 or went through foreclosure will be grateful for the tax break.
Oct. 10, 2007