Mortgage Forgiveness Debt Relief Act

On December 20th, President Bush signed into law H.R. 3648 otherwise known as the Mortgage Forgiveness Debt Relief Act.     Prior to this if a homeowner were to sell their home for less than the amount of the mortgage and the difference were forgiven by the lender, the amount of the forgiven debt would be taxable.  This new law will prohibit the Internal Revenue Service from striking with the foot when life has caused one to assume a prone position.  Scenarios in which this law would apply would include any foreclosure, short sale or deed in lieu were any portion of debt is forgiven by the lender.  Lenders do make a practice of forgiving such debt in cases in which the homeowner has little or no assets other then the mortgaged home.  The new law applies only to debt forgiven on a principle residence.