Extending debt tax relief ‘high priority’ – HUD leader

Extending tax relief on debt forgiveness is “a high priority,” said HUD Secretary Shaun Donovan at a Senate Banking Committee hearing.

Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude certain cancelled debt on your principal residence from income. The law is set to expire on December 31.

Donovan’s remarks come at a time when buyers are being drawn back to the housing market thanks to low mortgage rates and other factors.

Prices are rising because the number of foreclosures is declining and some underwater borrowers are getting a break, as banks slash the balances of thousands of mortgages and let homeowners sell for less than the value of their loans rather than go into foreclosure.