Yesterday the house passed H.R.3648 - Mortgage Forgiveness Debt Relief Act of 2007 which
amends the Internal Revenue Code to: (1) exclude from gross income amounts attributable to a discharge of mortgage indebtedness on a principal residence; . . . and (4) limit the exclusion from gross income of gain from the sale of a principal residence by denying an exclusion of the gain allocated to a nonqualified use of such residence.The vote was 386 to 27 with 19 abstaining. This "phantom income" relief bill, sponsored by Charlie Rangel, is not the same as the bill we reported on last month. That bill, HR 1876, simply solved the problem. The current bill modifies the capital gains treatment of second homes converted to primary residences to offset the tax revenue loss expected from the phantom income relief. The offset provision will kick in on second homes bought after 2007.
Yes Virginia, the phantom income monster was something Congress depended upon to generate tax revenue. So much for the hope that the phantom income monster was an unanticipated artifact. Your government knew it was kicking you while you were down. It can even tell you how much tax revenue mortgage forgiveness phantom income generates -- if the expected revenues from the offset are accurate, about two billion dollars a year.
The current bill only applies to phantom income situations arising on and after January 1, 2007. People foreclosed in 2006 and before are still screwed. Congress can give tax relief to the down and out, but not too much.
More after the break.
According to a story in the Daily Herald the bill now moves on
to the Senate for consideration, where a mortgage cancellation relief bill sponsored by Sen. Debbie Stabenow, D-Mich., is already pending before the Finance Committee. That bill, S-1394, lacks the House's capital gains changes affecting second homes, but was cited favorably by President Bush recently.I wonder what is going to happen in committee.
One wonders how many similar little tax "gotchas" are out there quietly generating a billion here and a billion there for the treasury while waiting to be exposed and promptly "fixed."
