U.S. House panel backs tax relief on mortgage debt

WASHINGTON, Sept 26 (Reuters) - Taxpayers who lose their homes to foreclosure would no longer face an untimely tax bill from the Internal Revenue Service on the unpaid mortgage debt under a bill approved by a U.S. House of Representatives panel on Wednesday.

The bill, unanimously approved by the taxwriting Ways and Means Committee, would also permanently extend a tax deduction for private mortgage insurance.

Currently any debt forgiven in a foreclosure or loan renegotiation is considered taxable income.

"Families dealing with the pain of a foreclosure should not have the double whammy of a large tax bill for terminating their mortgage through no fault of their own," Committee Chairman Charles Rangel, a New York Democrat, said in a statement.

The bill now goes to the House for consideration. The legislation was prompted by the subprime mortgage crisis that has left a growing number of home buyers unable to pay rising interest costs on loans.

To cover the the roughly $2 billion 10-year cost of the bill, the committee agreed to tighten rules on the tax treatment on the sale of vacation homes or rental property that were converted to a principal residence.