Bush Urges Congress to Reform Tax Code Provision Regarding Relief of Debt

Bush announced today some government initiatives to aid low income people in foreclosure, including some revisions to FHA loan regulations.  You read about it here.  All of this talk is merely lip service to a problem that will only be solved by a complete market correction, which will take a few years to pan out.  However, there is one specific initiative which will directly benefit people in foreclosure.  Bush is urging Congress to revise a provision of the tax code that currently treats relief of mortgage debt as income earned.  In doing foreclosure short sales, the only snag for the homeowner is that if the lender agrees to take a $50,000 discount on the debt owed, this means the homeowner could get an IRS 1099 form showing $50,000 in taxable income.  There are exceptions to the rule, but the new proposed legislation would eliminate this burden for the homeowner.