The U.S. House of Representatives Thursday overwhelmingly approved legislation providing tax relief to homeowners facing a foreclosure.
Under the bill, which was approved by a vote of 386-27, any debt forgiven to homeowners unable to repay their mortgage would no longer be treated as taxable income.
"It simply makes good sense to do this," said Rep. Richard Neal, a Massachusetts Democrat.
The legislation was passed in response to a subprime mortgage crisis that has reduced property values and left a growing number of homeowners unable to pay rising interest costs on their loans.
To cover the roughly $2 billion 10-year cost of the bill, the bill would change tax rules on the sale of vacation homes and rental property that were used as a principal residence.
The bill now heads to the Senate.
The White House said the tax relief should be temporary to help people through the current crisis and also objected to the tax change on the sale of vacation homes and rental properties.
In a statement, President Bush applauded the House's efforts to move the process forward and "I urge the Senate to swiftly consider this legislation and make it temporary."
Rep. Earl Blumenauer, an Oregon Democrat, argued that there was "never a good time to tax American homeowners on this phantom benefit" and said that was why the change in tax treatment of forgiven mortgage debt was permanent in the bill.
In a statement released earlier this week, the White House's Office of Management and Budget said the U.S. tax code already protected people who were insolvent. "Therefore, the most financially-stressed mortgage borrowers are already protected under current law."
The administration said it would work with Congress to "narrow the scope" of the pending legislation and "ensure that it addresses current difficulties without the potential for influencing future behavior."
The administration also said it was unnecessary to pay for the tax relief with revenue increases.