The Senate Finance Committee voted 23-3 in favor of extending a package of business and individual tax provisions known as “tax extenders,” including one that will ensure that mortgage debt that has been forgiven by a lender will be excluded from the borrower’s personal income.
Under current law, taxpayers who have mortgage debt canceled or forgiven after 2014 may be required to pay taxes on that amount as taxable income. Under this provision, up to $2 million of forgiven debt is eligible to be excluded from income through tax year 2016. This provision was created in the Mortgage Debt Relief Act of 2007 to shield taxpayers from having to pay taxes on cancelled mortgage debt stemming from mortgage loan modifications through 2010. It was extended through 2013 by the Emergency Economic Stabilization Act of 2008. The extension would be through 2016. A two-year extension of this provision is estimated to cost $5.122 billion over 10 years.
Also included in the package taken up by the Finance Committee was a mortgage insurance provision that would treat mortgage insurance premiums the same as interest, allowing a borrower to deduct the cost of the premiums from income taxes. This extension would also be through 2016.