Mortgage Forgiveness Debt Relief Act Expires in 2012

September 26, 2011: The time is limited for homeowners who want to ensure they aren’t hit with a big tax bill because they had to walk away from a mortgage obligation.

At the height of the housing crisis, when foreclosures across the country began a troubling increase, Congress passed the Mortgage Forgiveness Debt Relief Act of 2007, designed to provide at least some consolation to folks who had lost their homes.

If you borrow money and the lender then cancels or forgives the debt, you generally have to include the canceled amount as income for tax purposes. As the IRS explains, you aren’t taxed on borrowed money because you have an obligation to repay it. However, if the debt is wiped out, the lender is then required to report the amount of canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

You can imagine the frustration that many people had with this seemingly unfair tax rule. They had lost their homes and then discovered in a “you’ve-got-to-be-kidding-me” moment that they owed taxes on the forgiven debt.

That’s where the mortgage debt relief act comes in. It allows people to exclude income from the discharge of debt on their principal place of residence. In addition to foreclosure, debt reduced because of a mortgage restructuring also qualifies for relief under the new law.

The law says that only debt forgiven in calendar years 2007 through 2012 is eligible. Up to $2 million of forgiven debt qualifies for this exclusion ($1 million if married filing separately).

To get the relief, debt must have been used to buy, build or substantially improve a principal residence and be secured by that residence. So if you refinanced and took money out of the house to pay off credit card debt, you won’t receive the exclusion. Debt forgiven on second homes, rental property, business property, credit cards or car loans also does not qualify for the tax relief.

Published by Stout Law Firm

I have passed three bar exams

10 thoughts on “Mortgage Forgiveness Debt Relief Act Expires in 2012

  1. I leave a response when I appreciate a article on a website or I have something to valuable to contribute to the conversation.
    It’s triggered by the passion communicated in the post I looked at. And after this post Mortgage Forgiveness Debt Relief Act Expires in 2012 | STOUT LAW FIRM. I was moved enough to post a thought 🙂 I actually do have a few questions for you if you usually do not mind. Could it be just me or does it appear like a few of the remarks appear like they are coming from brain dead individuals? 😛 And, if you are posting on additional sites, I would like to keep up with everything fresh you have to post. Could you list all of your community pages like your Facebook page, twitter feed, or linkedin profile?

  2. Pharmaceutical companies have spent years and probably billions
    of dollars trying to create safe synthetic anti-inflammatories and COX-2 inhibitors.
    Nowadays, Chinese people can buy fresh vegetables in the market the whole year long; however, twenty or thirty years ago,
    in winter, because of the very cold weather,
    it was difficult to find fresh seasonal vegetables apart from winter grows.
    There are also various breathing exercises which will be effective in
    open some of the many airways and let in some new oxygen.

  3. I think this is one of the most important info for me.
    And i’m glad reading your article. But should remark on few general things, The website style is wonderful, the articles is really excellent : D. Good job, cheers

  4. Usually I do not read post on blogs, but I would like to say that this write-up very compelled me to take a look at and do it! Your writing style has been surprised me. Thanks, quite nice post.

Leave a Reply