Sponsor
Julia Brownley
Representative · D-CA
Representative · D-CA
The bill lets homeowners exclude forgiven principal-residence debt discharged after 2025—easing tax burdens and simplifying administration—but at the cost of lower federal revenue, unequal treatment for earlier discharges, and potential indirect effects on lender behavior.
Homeowners (especially middle-class families) with mortgage or home-equity debt discharged after 12/31/2025 can exclude that forgiven principal-residence debt from taxable income, reducing immediate tax burdens when they face foreclosure, short sale, or loan modification.
The tax change simplifies administration by removing the need to track and apply complex time-limited exceptions for discharged principal-residence debt, lowering compliance and enforcement complexity for the IRS and taxpayers.
Federal revenue will decline because forgiven mortgage debt that would previously have been taxable is now excluded, potentially increasing the deficit or reducing funds available for other programs.
Taxpayers whose mortgage or home-equity debt was discharged before Jan 1, 2026 may be unable to claim the exclusion, creating unequal treatment between earlier and later discharges.
By reducing the tax consequences of forgiving mortgage debt, the change could weaken lenders' incentives for aggressive loss-recovery and might indirectly affect lending terms, underwriting, or recovery practices.
Based on analysis of 2 sections of legislative text.
Removes date limits so forgiven mortgage debt on a primary residence is excluded from taxable income for discharges after Dec 31, 2025.
Official title: To amend the Internal Revenue Code of 1986 to make permanent the exclusion from gross income of discharge of qualified principal residence indebtedness.
Introduced February 4, 2025 by Julia Brownley · Last progress February 4, 2025
Removes the sunset/dates that limited the tax exclusion for forgiven debt on a taxpayer's primary residence and makes the exclusion available permanently for discharges that occur after December 31, 2025. In plain terms, forgiven mortgage debt on your main home that would otherwise count as taxable income will be excluded under the Internal Revenue Code for discharges after 2025, restoring and making permanent an exclusion previously limited by specific dates.