Congress has been urged to extend a $1.3 billion federal tax break on write-offs of mortgage debt that may expire at the end of the year even as lenders are increasingly cutting loan principal to help troubled borrowers.
The Mortgage Debt Relief Act of 2007 enables borrowers to avoid paying income taxes on the amount of principal that’s forgiven as part of a loan modification or during a short sale in which they sell their homes for less than they owe. If the measure expires, homeowners would have to count such debt reduction as money they earned.
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