IRS Tax Tips

Real Estate Agent with RE/MAX Agents Realty

Ten Facts about Mortgage Debt Forgiveness 

If your mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income. Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.

  1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
  2. The limit is $1 million for a married person filing a separate return.
  3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
  4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
  5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
  6. Proceeds of refinanced debt used for other purposes - for example, to pay off credit card debt - do not qualify for the exclusion.
  7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
  8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions - such as insolvency - may be applicable. IRS Form 982 provides more details about these provisions.
  9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
  10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. Taxpayers may obtain a copy of this publication and Form 982 either by downloading them from or by calling 800-TAX-FORM (800-829-3676).



Posted by

Dallas Chambers

RE/MAX Agents Realty

Office:  770-922-7777 X316

Cell:     770-595-1541



Each Office Independently Owned and Operated.  All information deemed reliable but not guaranteed.


Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Felix Hung 03/09/2010 06:23 PM
  2. Wallace S. Gibson, CPM 03/09/2010 09:04 PM
Lending / Financial
bank owned
short sales
foreclosed properties
first time homebuyer
first time homebuyers tax credit
irs tax tips

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Tim Lorenz
TIM LORENZ - Elite Home Sales Team - Mission Viejo, CA
949 874-2247

Good info for those who have had to sell by short sale and may have a tax problem.

Mar 09, 2010 04:23 PM #1
Vickie Nagy
Palm Springs, CA

Great informaiton Dallas. I know my broker is always pounding 'don't give tax advice'...but this isn't. It's stating facts that are very informative. Powerful stuff!

Mar 09, 2010 04:23 PM #2
Kimberly Thurm
Berkshire Hathaway HomeServices KoenigRubloff, Naperville, IL - Naperville, IL
Broker / Relocation Consultant ABR, CRS, GRI, SFR

Very timely!  There is a lot of uncertainty out there and this sure helps or at least points in the right direction, thanks.

Mar 09, 2010 04:46 PM #3
Lupe Soto

good time to talk about it. tax season.

Mar 09, 2010 05:31 PM #4
Felix Hung
Realty ONE Group - Irvine, CA

Dallas, this was well worth a reblog. Thanks for the information and perfect timing. YOU ARE DEFINITELY THE AREA EXPERT in Conyers!

Mar 09, 2010 06:42 PM #5
Catherine "Cathy" Chaudemanche- Edison, NJ
Metuchen Keller Williams Elite Realty / Middlesex County, NJ - Edison, NJ
Full Time, Informed and Involved- Results Driven

"IRS Tax Tips"

Don't tell me it is this time of the year yet...:)

Mar 09, 2010 09:13 PM #6
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