Released: October 06, 2007

Tax relief for distressed but not the rest

Source: Kenneth R. Harney, Washington Post (Free Registration)

In a tax-Peter-to-pay-Paul move, the House voted Thursday to permanently remove the “phantom income” tax penalty that haunts financially distressed homeowners whose debt is partially forgiven by a lender after a foreclosure or a short sale to avoid foreclosure.

The House also voted to extend the tax deductibility of mortgage insurance premiums through 2014 - an important benefit for many borrowers who pay either private mortgage insurance or Federal Housing Administration premiums on their loans.

To make up the lost tax revenue for those consumer-friendly changes, the House approved new restrictions on capital-gains-tax benefits available to people who buy second homes and later convert them to principal residences.

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