HR 917119th CongressIn Committee

Mortgage Debt Tax Forgiveness Act of 2025

Introduced: Feb 4, 2025

Standard Summary

Comprehensive overview in 1-2 paragraphs

The Mortgage Debt Tax Forgiveness Act of 2025 would amend the Internal Revenue Code to make permanent the exclusion from gross income for the discharge (forgiveness) of qualified principal residence indebtedness. In practical terms, it aims to ensure that when a lender forgives or cancels a mortgage on a primary home, the forgiven amount would not be taxed as income. The bill would modify the statute (Section 108(a)(1)(E)) by striking the current discharge-focused language and applying the change to indebtedness discharged after December 31, 2025, effectively providing a permanent tax exclusion for this type of mortgage debt relief going forward (prospectively, not retroactively). The bill was introduced in the House by Rep. Julia Brownley on February 4, 2025 and referred to the Committee on Ways and Means. It is titled to reflect a permanent extension of the existing exclusion from gross income for discharge of qualified principal residence indebtedness.

Key Points

1Purpose: Permanently extend the federal tax exclusion for discharge of qualified principal residence indebtedness, so forgiven mortgage debt on a primary residence remains non-taxable as income.
2Legislative change: Amends Section 108(a)(1)(E) of the Internal Revenue Code by removing the phrase describing debt that is “discharged” and related language, effectively altering how the exclusion is administered.
3Effective date: The amendment would apply to indebtedness discharged after December 31, 2025, making the policy prospective from that date forward.
4Scope: Applies specifically to qualified principal residence indebtedness (mortgage debt on a primary home), consistent with existing definitions in the tax code.
5Sponsor and status: Introduced in the House by Rep. Julia Brownley on February 4, 2025; referred to the Committee on Ways and Means. No further action is indicated in the provided text.

Impact Areas

Primary group/area affected- Homeowners with mortgage debt forgiveness on their principal residence who would benefit from not having forgiven debt counted as taxable income.Secondary group/area affected- Mortgage lenders, banks, and mortgage servicers, who process debt forgiveness and interact with borrowers in distress; may face changes in reporting and administration of forgiven debt.- Real estate markets and housing policy analysts, who monitor mortgage relief programs and tax incentives.Additional impacts- Federal revenue: By permanently exempting forgiven principal residence debt from gross income, the bill would reduce federal tax revenues related to debt forgiveness, with potential budgetary implications.- Tax complexity and administration: Likely reduces complexity for taxpayers who experience mortgage debt forgiveness and for the IRS in administering the exclusion, though it would require clear guidance on the exact scope and any remaining limits.- Equity and distribution: The policy primarily affects homeowners in distress or undergoing debt relief; it could have distributional effects depending on who benefits most and how widespread forgiveness events are.The bill’s text relies on the current framework of Section 108(a)(1)(E). The amendment’s structure suggests removing the discharge-specific language, but the precise drafting impact would be clarified by the final legislative language and any accompanying committee analysis.The measure is prospective (effective for debt discharged after 12/31/2025) and does not appear to grant retroactive relief for discharges that occurred before that date.

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