Someone lit a fire under Rep. Charles "Charlie" Rangel, which is good news for the San Diego real estate market in general, and many homeowners trying to determine the lesser of two evils, foreclosure or a short sale and the tax liability which goes with it.

Earlier today, the House Ways and Means Committee, chaired by Rangel, unanimously approved H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007, which Rangel introduced yesterday. The bill "would amend the Internal Revenue Code of 1986 to exclude discharges of indebtedness on principal residences from gross income, and for other purposes".

From House Committee on Ways and Means: 

WASHINGTON -- The House Committee on Ways and Means unanimously approved H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007, today in response to some of the tax issues that have arisen as a result of problems in the subprime mortgage market. Under current law, debt forgiven following mortgage foreclosure or renegotiation is considered income for tax purposes, resulting in tax liability for individuals and families.

In addition to addressing the taxation of phantom income derived from a short sale or foreclosure, the bill extends the mortgage deductibility of private mortgage insurance premiums through 2014.  

The bill now goes to the full House for a vote.

UPDATE: House Passes Short Sale Related Mortgage Forgiveness Debt Relief

UPDATE: Senate Passes H.R. 3648 Providing Short Sale Tax Relief

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

Overview of debt forgiveness portion of bill: Short Sale and Phantom Tax Debt Relief Overview