The U.S. Senate has approved a bill that extends 55 tax provisions, including one that allows deductions for mortgage insurance premium interest and tax relief on forgiven mortgage debt.
The legislation, known as the Tax Increase Prevention Act of 2014, now moves to President Barack Obama, who is expected to sign it into law. The Senate passed the package by a 76-16 vote, after the U.S. House easily cleared it (387 to 46) earlier in December.
The bill provides for a retroactive one-year extension on the tax provisions, which expire on December 30 of this year, and would be effective for those filing 2014 returns next year. One of the provisions protects distressed homeowners from paying taxes on any mortgage debt forgiven in a short sale.
Additionally under the bill, taxpayers who own homes can count qualified mortgage insurance premiums as interest for the purpose of mortgage interest deduction on their tax returns.
The U.S. Mortgage Insurers commended the passage of the act by Congress stating it is a vital homeowner tax relief.
“We are especially pleased that the legislation includes the tax-deductible treatment of mortgage insurance premiums for low and moderate income borrowers,” the coalition said. “We look forward to working with Congress towards permanent enactment of this important tax relief for homeowners.”
After the housing bust, Congress created the Mortgage Forgiveness Debt Relief Act of 2007 with the intention of protecting homeowners who lose their home in a short sale or deed-in-lieu of foreclosure from an outrageous tax bill.
Before the exemption, distressed homeowners had to pay taxes on mortgage debt that was canceled or forgiven by the lender. The amount of forgiven or canceled mortgage debt was treated as ordinary income and taxed as such.