Introduced Sept. 25, 2007

• Rep. Charles Rangel and 25 co-sponsors introduced the Mortgage Forgiveness Debt Relief Act of 2007, HR 3648, on Sept. 25, 2007. Rangel is a Democrat from New York.
  
  It passed the U.S. House of Representatives on Oct. 4, 2007, by a 386-27 vote with 19 abstentions and the U.S. Senate on Dec. 14 by a unanimous vote. President Barack Obama signed it on Dec. 20.
  
  

How It Works

• A homeowner's mortgage isn't considered income because it is borrowed money being repaid. If all or part of the mortgage is forgiven by the lender, then it's considered income and is taxable.
  
  HR 3648 changed that for forgiven debt on a homeowner's principal residence following a sharp increase in mortgage defaults in late 2007. The act does not change the policy for investment or vacation property, which are still taxed.
  
  It applied only to canceled or forgiven debt, including refinanced debt, used to build, buy or improve your principal residence. The debt must be secured by the home itself, known as qualified principal residence indebtedness.
  
  

Exceptions

• The exemption does not apply if the lender forgave the debt in exchange for services or other reasons unrelated to the homeowner's financial state or the home's reduced value.
  
  It also does not apply to debts discharged through bankruptcy, debts canceled when insolvent, certain farm debts and non-recourse loans. These loans are for instances when the property is repossessed but the owner is not personally liable.
  
  

Act Extended Through 2012

• The Emergency Economic Stabilization Act, informally known as the financial industry bailout, extended this relief to debt forgiven to the years 2007 to 2012. It was sponsored by Rep. Patrick J. Kennedy, a Rhode Island Independent. It passed the Senate on Oct. 1 by a 74-25 vote and the House on Oct. 3 by a 263-171 vote. President Obama signed it that same day.
  
  (References 2 and 5)