Did you know... If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable. This is true for mortgage debt, credit card debt, student loans, and more. There are, of course, exceptions.
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their primary residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
This provision applies to debt forgiven since 2007. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
It is important to note that debts charged off through bankruptcy are not considered taxable income.
To find out more about this law, shortsales, or foreclosures contact us here.
More information on the Mortgage Debt Relief Act can be found on the IRS website.
Comments(0)