Debt Relief Act 2007 H.R. 3648:

Mortgage Forgiveness Debt Relief Act of 2007  H.R.3648

Mortgage Debt Relief Act  of 2007 will save many  homeowners facing short-sales or foreclosures from paying federal taxes on the “forgiven” debt they benefited on their balance sheet compared to the lose on the banks balance sheet.

Here is a copy of H.R.3648 [Mortgage Foregiveness Debt Relief Act of 2007]

There are very specific requirements:

• The mortgage is for the homeowners principal residence.  The relief does not apply to any debt forgiveness for any vacation or investment home.
• Forgiveness is only for the “acquisition indebtedness” of the principal residence.  Acquisition Indebtedness is defined as the debt used to acquire, construct or rehabilitate the home. 
• No relief is available for cash-out mortgages whether the cash-out takes the form of a refinanced first mortgage, a second mortgage, a home equity line of credit or a similar arrangement.
   
  Important note: This bill relieves these specific homeowner of their federal tax liability but does NOT relieve the homeowner of their state income tax liability.
  • Exception:  If the cash-out was specifically used to improve the home and the homeowner has adequate records to prove it.  This means that the bank cannot go after the homeowner for a any debt that was used for home improvement so long as the home owner can prove that all the money was use to improve the property. [no money was used to pay off credit cards, buy vacations, buy investment properties, purchase jet ski's, etc. You get the idea!]
     
    Always consult your tax preparer, CPA, Realtor and attorney for additional interpretation.