The Mortgage Forgiveness Debt Relief Act of 2007 was introduced in the United States Congress on September 25, 2007, and signed into law by President George W. Bush on December 20, 2007.
This act offers relief to homeowners who would have owed taxes on forgiven mortgage debt after facing foreclosure.
The Bipartisan Budget Act of 2018 renewed it for all of the tax year 2017 and offered a wide range of individual and business tax benefits that had expired at the end of 2016, including the "exclusion from gross income of discharge of qualified principal residence indebtedness (often, foreclosure-related debt forgiveness), claimed on Form 982.
Homeowners who did cash out refinancing and used the money for any other purpose than fixing up their house could still be required to report the forgiven debt as income.
However, after the signing of the Mortgage Forgiveness Act of 2007, amendments have been made to remove such tax liability and allow the borrower and lender to work freely together to find a common solution that is beneficial to both parties.