UPDATE: President Bush signs HR 3648, The Mortgage Forgiveness Debt Relief Act of 2007.

It took them close to two and half months, but the U.S. Senate finally got around to passing H.R. 3648, The Mortgage Forgiveness Debt Relief Act of 2007. Initially sent to the Senate on October 4th, the Senate passed this legislation on Friday, December 14th, allowing Senate Finance Committee Chairman Max Baucus to crow a bit about helping the U.S. homeowner dealing with foreclosure or a short sale.

Sen. Baucus released the following press release on Friday:

Washington, DC – Senate Finance Committee Chairman Max Baucus (D-Mont.) won passage today of legislation offering tax relief to American families caught in the subprime mortgage crisis. When debt is forgiven on a home loan, the homeowner must normally count that debt forgiveness as income and pay taxes on it. The bill approved today as an amendment to H.R. 3648 creates a three-year exception for debt forgiveness on home loans – helping families already unable to meet their mortgages to avoid incurring large tax bills as well. The bill also extends a provision allowing homeowners to deduct mortgage insurance payments from their taxable income. “Homeowners who are already in trouble on the mortgage certainly can’t afford a big hit from the tax man too,” said Baucus. “Upheaval in the housing market has turned the world upside down for far too many families, and Congress needs to help these folks climb out of a financial hole. This mortgage tax bill will help to ease the burdens of homeowners who are hurting today.” In addition to tax relief for debt forgiveness and mortgage insurance payments, the bill includes: - Tax relief for volunteer firefighters and emergency medical technicians

- Help to expand housing options for college students with children

- Protection of tax relief for homeowners after the death of a spouse

- Flexibility to help co-op tenant/owners deduct real estate taxes and mortgage insurance The bill is fully offset by increased penalties for failure to file S corporation returns or partnership returns, and new requirements for the payment of corporate estimated taxes. It is now necessary for the House to pass the updated legislation and send it to the President for signature into law.

While I'm thrilled they have finally got this close to a done deal, waiting for 10 weeks to act hurt many homeowners.

"Senate Finance Committee Chairman Max Baucus (D-Mont.) won passage today of legislation offering tax relief to American families caught in the subprime mortgage crisis."

Baucus and Finance Committee member Chuck Schumer could have "won" this months ago. Michigan Senator Debbie Stabenow introduced similar legislation, S. 1394, back in May. While this topic didn't gain momentum until August when the mortgage crisis took over the the front pages of the NY Times and Wall Street Journal, they could have passed this in October when they returned from their break. Since then, thousands of distressed homeowners, forced to choose between the lesser of two evils, made the decision to give the property back to the bank to avoid the phantom income tax potential of a short sale.

Don't you just love politics?

*Short Sale and Phantom Tax Debt Relief Overview - an overview of the debt forgiveness portion of the bill.

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