What is the Mortgage Forgiveness Debt Relief Act of 2007?
Mortgage Forgiveness Debt Relief Act (HR 3648)
Generally, the Act allows exclusion of income taxes realized as a result of modification of the terms of the mortgage, short sale, or foreclosure on your principle residence.
Qualifications for Tax Exemption:
- The forgiven debt applies only if it was used to buy, build, or substantially improve a principle residence.
- If a homeowner refinanced the debt incurred for the previously stated purposes. (Buying, building, or substantially improving on a principle residence).
- The debt must be secured by the home.
Up until 2007, homeowners would have been issued a 1099-C after the short sale of their home for the remaining debt. This 1099-C would then be taxed as traditional income tax. Depending on the individuals tax bracket, costs could be between $30,00-35,000 on a remaining balance of $100,000. This act has changed that rule and will continue through December 2012.
TAX ADVICE DISCLOSURE
To ensure compliance with requirements imposed by the IRS under Circular 230, we inform you that any U.S. federal tax advice contained in this communication (including any attachments), unless otherwise specifically stated, was not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any matters addressed herein.