Homeowners special tax relief from mortgage debt that was forgiven

Homeowners special tax relief from mortgage debt that was forgiven  (Section 3 on my Short Sale Blog)

For those who were 1099 in 2007 for mortgage debt you might qualify for the new special tax relief.  The complete information is on IRS.gov search for form number 982 and don't forget to talk to your accountant to see if the Mortgage Forgiveness Debt Relief Act of 2007 applies to you.  This new law contains provisions for struggling homeowners, so you want to make sure you can and do take full advantage of the tax relief.   Since it was enacted in late-December it might not be in the tax software, so check with the provider to make sure that you get the update.    It is my understanding that the IRS is also updating their software and it should by March 3rd, be able to accept the Form 982 for those who use electronic filing. 

The new law applies to debt forgiven in 2007, 2008 or 2009 (I guess that tells you how long the government expects this to last).    There are some catches, the debt must have been used to buy, build or substantially improve the taxpayers' principle residence and must have been secured by that residence.  If there was a refinance it is eligible for the exclusion, but only up to the amount of the old mortgage principle before the refinance.

There are some debt forgiveness on second homes, rental property, business property credit cards or car loans see Form 982 for details.

Borrowers whose debt is reduced or eliminated will receive a year -end statement (Form 1099-C).  The debt that was canceled in 2007, the lender will be required to provide  by January 31, 2008, if you didn't receive it ask your accountant what to do.   It needs to include the amount of the debt forgiven and the fair market value of any property given up through foreclosure.  .  If the information is incorrect make sure you contact the lender.

Again, this can be very complicated seek out an accountant or a tax attorney to make sure you get the full advantage to this law.

I hope you find this helpful.  Take care, stay safe and remember to make decisions with knowledge

Diana Margala 909-945-5763