Mortgage Debt Tax Forgiveness Act of 2025

If your mortgage lender forgives part of what you owe on your home — say, through a short sale, loan modification, or foreclosure — the IRS can treat that forgiven debt as taxable income, leaving you with a surprise tax bill on top of an already stressful financial situation. Congress created a temporary exception for this after the 2008 housing crisis, but it keeps expiring and getting renewed. This bill would make that tax exclusion permanent, so homeowners who lose money on their primary residence never have to worry about getting taxed on debt their lender wrote off.