The House has passed a tax relief bill by a 386-27 vote that removes a tax penalty on homeowners when the principal amount of their mortgage is reduced due to loan modifications, short sales, or deeds in lieu.Up to $2 million in debt reduction could be taken by a homeowner facing foreclosures without a tax penalty under the Mortgage Forgiveness Debt Relief bill (H.R. 3648). The bill would also extend for seven years a tax deduction on mortgage insurance premiums. "The Administration supports House passage of H.R. 3648, which advances the President's proposal to help financially troubled homeowners by shielding mortgage write-offs from taxation," the White House Office of Management and Budget said in a Statement of Administration Policy. However, the Bush administration "strongly believes" the relief should be temporary. The SAP also says the administration does not believe it is "necessary" to change the capital gains rules for second homes to offset the costs of the debt forgiveness provisions. An effort to strip the capital gains provision from the bill failed on a 201-212 vote. The Senate has not taken any action on a mortgage debt forgiveness bill.

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