Congress makes permanent a tax break for homeowners with forgiven mortgages.
H.R. 917 — Mortgage Debt Tax Forgiveness Act of 2025 · Filed by Julia Brownley (D-CA) · Introduced Feb 4, 2025 · Referred to committee
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What it does
This bill makes permanent a tax break that allows homeowners to exclude forgiven mortgage debt from their taxable income. Currently, when a lender forgives part of a mortgage (e.g., in a short sale or loan modification), the forgiven amount is treated as taxable income; this bill eliminates that tax hit permanently, effective for mortgages discharged after December 31, 2025.
Why we flagged it
The bill's sole operative mechanism is to make permanent an existing tax exclusion for homeowners whose mortgage debt is forgiven. It is a straightforward tax-code amendment with no riders or hidden provisions.
What the text implies
- Lenders may face reduced incentive to pursue deficiency judgments against borrowers in short sales, since borrowers no longer face a tax penalty for forgiven debt—potentially shifting loss-absorption toward creditors rather than homeowners.
- The permanent exclusion removes a fiscal cliff that previously required Congress to periodically renew the provision, reducing legislative uncertainty for mortgage servicers and borrowers planning loan modifications.
The full analysis lists 3 implications of this text.
Who stands to gain
homeowners with forgiven mortgage debt; mortgage servicers and lenders (reduced deficiency-judgment leverage, but simplified compliance)