| This provision applies to debt forgiven in 2007, 2008 or 2009. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t 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. Re: Mortgage Forgiveness Debt Relief Act of 2007 |
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IRS Says
Foreclosures,
and Short Sales
Can Offer a Tax
benefit for you
The latest relief effort for those facing mortgage problems comes from the U.S. Treasury Department's Internal Revenue Service (IRS). "IRS Questions and Answers on Home Foreclosure and Debt Cancellation" offers salient answers to burning questions related to financial disasters at home. The information is designed to reassure homeowners that while mortgage workouts can have tax consequences, special relief provisions can often reduce or eliminate the tax bite. For example:
Debts discharged
through
bankruptcy are
not taxable. For
those who are
insolvent when
the debt is
cancelled, some
or all of the
cancelled debt
may escape
taxation. If you
really lose the
farm, certain
farm-related
cancelled debts
are not taxable.
Also not taxable
is the
forgiveness of
debt on
so-called
non-recourse
loans, loans for
which the
lender's only
remedy in the
case of default
is to repossess
the property.
Also, some or all of the gain from a foreclosure sale of a personal residence qualifies for exclusion from income under the U.S. Taxpayer's Relief Act of 1977. If you have owned and used the home as your principal residence of no less than two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. The new IRS section includes a host of additional information, including worksheets to figure cancellation of debt income and gain from foreclosure as well as links to related publications, fact sheets and tax filing forms. We recommend the use of professional tax help to determine how these tax rules do or do not apply. Call
us, Lets talk about your situation
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Short Sale
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