Almost everyone knows someone who has gone through aloan modifcation, a short sale or even a foreclosure. in today's economy, major mortgage upheaval is not uncommon. Job losses, medical bills, adjustable rates and other hardships are causing amny homeowners to weigh all their options with regard to what is generally their biggest asset or liability as the case may be;their home.
Among the many factors to consider is tax. From a tax standpoint, a forgiven loan is income. before the real estate bubble burst in 2007, homeowners had to worry about taxes after dealing with the financial turmoil and heartbreak of a short sale or foreclosure. The tax bill was based on the amount of indebtness that had been forgiven by the mortgage company or bank..Fortunately, Congress enacted the Mortgage Forgiveness Debt Relief Act of 2007 to help do away with this potential salt in the wound.
The act, which affects mortgage debt discharged on or after January 1, 2007 and before january 1, 2013, generally allows taxpayers to exclude up to $ 2 million per married couple of mortgage debt forgiveness on their principal residence. In other words, under the exclusion, the tax payer's gross income would not include any discharge of qualified principal residence debt by the bank or mortgage company.
It is important to recognize that the act relates to forgiveness of federal taxes.
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