Mortgage Forgiveness Debt Relief Act 2016 – WA Property Solutions #standard #mortgage


#mortgage relief act

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Mortgage Forgiveness Debt Relief Act Extended Through 2016

On December 18, 2015, President Obama signed a bill that extended the Mortgage Forgiveness Debt Relief Act through December 31, 2016. The extension also retroactively covers mortgage debt cancelled in 2015.

The Mortgage Forgiveness Debt Relief Act (MFDRA ) prevents homeowners who went through a short sale from being taxed on the amount of their home mortgage debt that had been forgiven. Normally, debt that has been forgiven by a lender counts as taxable income .

Originally enacted in 2007, the

  • Mortgage Forgiveness Debt Relief Act allows debt forgiveness of up to $2 million to NOT be considered taxable income if:

    • The house has been used as the principal place of residence for at least two of the previous five years.
    • The debt has been used to buy, build, or make substantial improvements to the home.

    Obviously, this is a huge relief to owners of distressed properties who are already facing financial burdens, and it eases many of the concerns they may have had about moving forward with a short sale.

    Even if you don’t qualify for the Mortgage Forgiveness Debt Relief Act, you still may be able to avoid paying taxes on forgiven debt by taking advantage of the IRS insolvency clause .

    It is critical that homeowners considering a short sale meet with a professional to review their options and discuss the potential legal and tax implications.

    Washington Property Solutions offers FREE real estate attorney consultations as part of our service.

    Call us at 425-381-2233 to schedule a free confidential consultation.

    About Martin Goldberg

    Bellevue Condo Short Sale Wipes Clean Two Mortgages; Owners Receive $10,000 HAFA Cash Incentive


  • How to Avoid Taxes on Canceled Mortgage Debt – TurboTax Tax Tips & Videos #liberty


    #mortgage relief act

    #

    How to Avoid Taxes on Canceled Mortgage Debt

    The Internal Revenue Service considers most cancelled debts as income for the recipient. The amount of a loan or mortgage forgiven by a lender is taxed as though the borrower earned that amount as income, says Cappy Pearson, tax preparation specialist. However, the Mortgage Debt Relief Act does allow an exemption for certain mortgage or foreclosure situations.

    Adding forgiven debts to income

    If your forgiven debt is subject to taxation, you will usually receive a form 1099-C, Cancellation of Debt, from the lender, showing the amount of canceled debt. You ll file the 1099-C with your federal tax return, and the amount of canceled debt is added to your gross income.

    There are, however, exceptions and exclusions that may save you from the requirement to report canceled debt as part of your income.

    Exceptions and exclusions

    Not all canceled debt is subject to income tax. The IRS recognizes both exceptions to canceled debt rules as well as amounts that are excluded from gross income due to their origin.
    Exceptions include:

    • Gifts, bequests or inheritances
    • Some qualified student loans
    • Any debt that, had it been paid, would have been a deductible item for the borrower
    • A qualified reduction in price offered by a seller
    • Certain payments on the balance of a mortgage under the Home Affordable Modification Program

    When a loan is secured by property, such as a mortgage where the home and land stand as collateral, and the lender takes the property as full or partial settlement of the debt, it is considered a sale for tax purposes, not a forgiven debt. In that case, you may need to report capital gains or losses on the sale of the property, but you will not need to add forgiven debt to your income.
    Exclusions include:

    • Debt canceled in a Title 11 bankruptcy or during insolvency
    • Canceled qualified farm debt
    • Canceled qualified real property business debt
    • Principal residence indebtedness under terms of the Mortgage Debt Relief Act (2007 through 2016). This can also apply to debt that is discharged in 2017 provided that there was a written agreement entered into in 2016.

    If you claim an exclusion, you can t claim tax credits or capital losses or otherwise improve your tax situation using the excluded property.

    The Mortgage Debt Relief Act of 2007

    Applying only to your principal residence, the Mortgage Debt Relief Act excluded as income any debt discharge up to $2 million. Provisions of the Act applied to most homeowners, and it included partial debt relief gained through mortgage restructuring as well as full foreclosure. Refinancing was also allowed, but only up to the amount of principal balance of the original mortgage.

    The Act also covered loans and subsequent debt forgiveness for amounts borrowed to substantially improve a principal residence. You cannot use provisions of the Act for other canceled debts, and the relieved debt must be secured by the principal residence property. The Act covered debt forgiven within the calendar years of 2007 to 2016. This can also apply to debt that is discharged in 2017 provided that there was a written agreement entered into in 2016.

    Extension of the Mortgage Debt Relief Act

    The Act initially covered a three-year period between 2007 and 2010, but was extended four times, to 2012, 2013, 2014 and then to 2016. This can also apply to debt that is discharged in 2017 provided that there was a written agreement entered into in 2016.

    Another way around the tax bite

    If you re not covered by the special tax break for principal residences described above, there are two very important exceptions to the cancelled debt = taxable income rule.

    The cancelled debt is not income, even if you receive a Form 1099-C, if

    1. You received the cancelled debt due to bankruptcy filing, or
    2. To the extent you are insolvent immediately before the cancellation of the debt.

    Insolvency means your debts exceed the value of all your assets. You can exclude cancelled debt from income up to the amount that you are insolvent. For example, if you had assets of $80,000 and debt of $100,000, you are considered to insolvent by $20,000. If you had $30,000 in debt cancelled at this time of insolvency, you would have to include only $10,000 ($30,000 minus $20,000) in your income.

    Cancelled debt can be a challenging tax situation especially during hard financial times. TurboTax will guide you through the cancelled debt maze, including the new legislation, and help minimize the pain from in these tough situations.

    Get every deduction
    you deserve

    TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.

    The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

    * Important Offer Details and Disclosures

    • Filing Deadline: IRS filing deadline for tax year 2015 is April 18, 2016 (except for residents of Massachusetts or Maine, where the IRS filing deadline for tax year 2015 is April 19, 2016).
    • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Free 1040EZ/A + Free State offer only available with TurboTax Federal Free Edition; Offer may change or end at any time without notice. Actual prices are determined at the time of print or e-file and are subject to change without notice. Savings and price comparisons based on anticipated price increase expected 3/18/16. Special discount offers may not be valid for mobile in-app purchases.
    • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal e-file of up to 5 federal tax returns. Additional fees apply for efiling state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase expected 3/18/16. Prices subject to change without notice.
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    About
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    Important Facts about Mortgage Debt Forgiveness #mortgage #rates #trends


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    Important Facts about Mortgage Debt Forgiveness

    IRS Tax Tip 2013-31, March 12, 2013

    If your lender cancelled or forgave your mortgage debt, you generally have to pay tax on that amount. But there are exceptions to this rule for some homeowners who had mortgage debt forgiven in 2012.

    Here are 10 key facts from the IRS about mortgage debt forgiveness:

    1. Cancelled debt normally results in taxable income. However, you may be able to exclude the cancelled debt from your income if the debt was a mortgage on your main home.
  • To qualify, you must have used the debt to buy, build or substantially improve your principal residence. The residence must also secure the mortgage.
  • The maximum qualified debt that you can exclude under this exception is $2 million. The limit is $1 million for a married person who files a separate tax return.
  • You may be able to exclude from income the amount of mortgage debt reduced through mortgage restructuring. You may also be able to exclude mortgage debt cancelled in a foreclosure.
  • You may also qualify for the exclusion on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home. The exclusion is limited to the amount of the old mortgage principal just before the refinancing.
  • Proceeds of refinanced mortgage debt used for other purposes do not qualify for the exclusion. For example, debt used to pay off credit card debt does not qualify.
  • If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Submit the completed form with your federal income tax return.
  • Other types of cancelled debt do not qualify for this special exclusion. This includes debt cancelled on second homes, rental and business property, credit cards or car loans. In some cases, other tax relief provisions may apply, such as debts discharged in certain bankruptcy proceedings. Form 982 provides more details about these provisions.
  • If your lender reduced or cancelled at least $600 of your mortgage debt, they normally send you a statement in January of the next year. Form 1099-C, Cancellation of Debt, shows the amount of cancelled debt and the fair market value of any foreclosed property.
  • Check your Form 1099-C for the cancelled debt amount shown in Box 2, and the value of your home shown in Box 7. Notify the lender immediately of any incorrect information so they can correct the form.
  • Use the Interactive Tax Assistant tool on IRS.gov to check if your cancelled debt is taxable. Also, see Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. IRS forms and publications are available online at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

    Additional IRS Resources:

    IRS YouTube Videos:

    Page Last Reviewed or Updated: 13-Sep-2013


    How to Avoid Taxes on Canceled Mortgage Debt – TurboTax Tax Tips & Videos #arm


    #mortgage relief act

    #

    How to Avoid Taxes on Canceled Mortgage Debt

    The Internal Revenue Service considers most cancelled debts as income for the recipient. The amount of a loan or mortgage forgiven by a lender is taxed as though the borrower earned that amount as income, says Cappy Pearson, tax preparation specialist. However, the Mortgage Debt Relief Act does allow an exemption for certain mortgage or foreclosure situations.

    Adding forgiven debts to income

    If your forgiven debt is subject to taxation, you will usually receive a form 1099-C, Cancellation of Debt, from the lender, showing the amount of canceled debt. You ll file the 1099-C with your federal tax return, and the amount of canceled debt is added to your gross income.

    There are, however, exceptions and exclusions that may save you from the requirement to report canceled debt as part of your income.

    Exceptions and exclusions

    Not all canceled debt is subject to income tax. The IRS recognizes both exceptions to canceled debt rules as well as amounts that are excluded from gross income due to their origin.
    Exceptions include:

    • Gifts, bequests or inheritances
    • Some qualified student loans
    • Any debt that, had it been paid, would have been a deductible item for the borrower
    • A qualified reduction in price offered by a seller
    • Certain payments on the balance of a mortgage under the Home Affordable Modification Program

    When a loan is secured by property, such as a mortgage where the home and land stand as collateral, and the lender takes the property as full or partial settlement of the debt, it is considered a sale for tax purposes, not a forgiven debt. In that case, you may need to report capital gains or losses on the sale of the property, but you will not need to add forgiven debt to your income.
    Exclusions include:

    • Debt canceled in a Title 11 bankruptcy or during insolvency
    • Canceled qualified farm debt
    • Canceled qualified real property business debt
    • Principal residence indebtedness under terms of the Mortgage Debt Relief Act (2007 through 2016). This can also apply to debt that is discharged in 2017 provided that there was a written agreement entered into in 2016.

    If you claim an exclusion, you can t claim tax credits or capital losses or otherwise improve your tax situation using the excluded property.

    The Mortgage Debt Relief Act of 2007

    Applying only to your principal residence, the Mortgage Debt Relief Act excluded as income any debt discharge up to $2 million. Provisions of the Act applied to most homeowners, and it included partial debt relief gained through mortgage restructuring as well as full foreclosure. Refinancing was also allowed, but only up to the amount of principal balance of the original mortgage.

    The Act also covered loans and subsequent debt forgiveness for amounts borrowed to substantially improve a principal residence. You cannot use provisions of the Act for other canceled debts, and the relieved debt must be secured by the principal residence property. The Act covered debt forgiven within the calendar years of 2007 to 2016. This can also apply to debt that is discharged in 2017 provided that there was a written agreement entered into in 2016.

    Extension of the Mortgage Debt Relief Act

    The Act initially covered a three-year period between 2007 and 2010, but was extended four times, to 2012, 2013, 2014 and then to 2016. This can also apply to debt that is discharged in 2017 provided that there was a written agreement entered into in 2016.

    Another way around the tax bite

    If you re not covered by the special tax break for principal residences described above, there are two very important exceptions to the cancelled debt = taxable income rule.

    The cancelled debt is not income, even if you receive a Form 1099-C, if

    1. You received the cancelled debt due to bankruptcy filing, or
    2. To the extent you are insolvent immediately before the cancellation of the debt.

    Insolvency means your debts exceed the value of all your assets. You can exclude cancelled debt from income up to the amount that you are insolvent. For example, if you had assets of $80,000 and debt of $100,000, you are considered to insolvent by $20,000. If you had $30,000 in debt cancelled at this time of insolvency, you would have to include only $10,000 ($30,000 minus $20,000) in your income.

    Cancelled debt can be a challenging tax situation especially during hard financial times. TurboTax will guide you through the cancelled debt maze, including the new legislation, and help minimize the pain from in these tough situations.

    Get every deduction
    you deserve

    TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.

    The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

    * Important Offer Details and Disclosures

    • Filing Deadline: IRS filing deadline for tax year 2015 is April 18, 2016 (except for residents of Massachusetts or Maine, where the IRS filing deadline for tax year 2015 is April 19, 2016).
    • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Free 1040EZ/A + Free State offer only available with TurboTax Federal Free Edition; Offer may change or end at any time without notice. Actual prices are determined at the time of print or e-file and are subject to change without notice. Savings and price comparisons based on anticipated price increase expected 3/18/16. Special discount offers may not be valid for mobile in-app purchases.
    • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal e-file of up to 5 federal tax returns. Additional fees apply for efiling state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase expected 3/18/16. Prices subject to change without notice.
    • Anytime, anywhere: Internet access required; standard message and data rates apply to download and use mobile app.
    • Fastest refund possible: Fastest tax refund with efile and direct deposit; tax refund timeframes will vary.
    • Pay for TurboTax out of your federal refund: A $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice. This benefit is available with TurboTax Federal products except the TurboTax Home Business/QuickBooks Self-Employed bundle offers.
    • About our TurboTax Product Experts: Customer service and product support vary by time of year.
    • About our credentialed tax experts: Live tax advice service is available via phone for your toughest tax questions; fees may apply. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Not available for TurboTax Business customers.
    • #1 best-selling tax software: Based on aggregated sales data for all tax year 2014 TurboTax products.
    • Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.
    About
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    Refinance, Mortgage Refinancing, Debt Consolidation Loan Refinance, Home Equity Loans #mortgage #qualification #calculator


    #refinance home mortgage

    #

    Mortgage Refinancing
    Mortgage refinancing can serve a number of
    purposes including reducing monthly payments, lowering interest rates and providing the
    opportunity to consolidate existing debts.

    Home Equity Refinancing
    Refinancing can also offer the homeowner the opportunity to utilize the existing equity in their home. For many homeowners the appeal of
    lowering monthly payments is alluring because it increases the cash flow for the homeowners.

    Consolidating Debt
    Do not let another day go by without finding out if you can consolidate your credit card debt.
    Eliminate calls from creditors and avoid credit problems by having a professional consolidate your debt.

    Auto Loan Refinancing
    Refinance.org also provides a wealth of
    information for those who might be interested in more information on how to get better auto loans. The process of refinancing an auto loan is very similar to mortgage refinancing.

    Student Loan Consolidation and Refinancing
    Recent college graduates often find themselves overburdened with new responsibilities and
    experiences. Obligations to begin repaying student loans can add to the stress these new graduates endure.


    Mortgage Forgiveness Debt Relief Act 2016 – WA Property Solutions #interest #only #mortgage


    #mortgage relief act

    #

    Mortgage Forgiveness Debt Relief Act Extended Through 2016

    On December 18, 2015, President Obama signed a bill that extended the Mortgage Forgiveness Debt Relief Act through December 31, 2016. The extension also retroactively covers mortgage debt cancelled in 2015.

    The Mortgage Forgiveness Debt Relief Act (MFDRA ) prevents homeowners who went through a short sale from being taxed on the amount of their home mortgage debt that had been forgiven. Normally, debt that has been forgiven by a lender counts as taxable income .

    Originally enacted in 2007, the

  • Mortgage Forgiveness Debt Relief Act allows debt forgiveness of up to $2 million to NOT be considered taxable income if:

    • The house has been used as the principal place of residence for at least two of the previous five years.
    • The debt has been used to buy, build, or make substantial improvements to the home.

    Obviously, this is a huge relief to owners of distressed properties who are already facing financial burdens, and it eases many of the concerns they may have had about moving forward with a short sale.

    Even if you don’t qualify for the Mortgage Forgiveness Debt Relief Act, you still may be able to avoid paying taxes on forgiven debt by taking advantage of the IRS insolvency clause .

    It is critical that homeowners considering a short sale meet with a professional to review their options and discuss the potential legal and tax implications.

    Washington Property Solutions offers FREE real estate attorney consultations as part of our service.

    Call us at 425-381-2233 to schedule a free confidential consultation.

    About Martin Goldberg

    Bellevue Condo Short Sale Wipes Clean Two Mortgages; Owners Receive $10,000 HAFA Cash Incentive


  • Mortgage Debt Forgiveness Relief Act 2014 #mortgage #types


    #mortgage relief act

    #

    Short sale and foreclosure tax slated to return in 2014

    The time has come. The Mortgage Debt Forgiveness Relief Act has finally run its course, and many homeowners will now be on the hook for short sale tax or foreclosure tax in 2014.

    Let’s start with the back story. Originally passed in 2007, the Mortgage Debt Forgiveness Relief Act provided a tax exemption to homeowners when their mortgage company forgave debt though a short sale or foreclosure.

    Let’s say you had purchased a home for $400,000 and took out a mortgage for $300,000. Later, you short sold the home for $200,000 and your lender agreed to forgive the balance of $100,000. Instead of the IRS considering that forgiven $100,000 as income, Congress allowed homeowners to short sell or foreclose without having to pay the IRS for their canceled debt.

    In October 2008, due to the ongoing hardships suffered by the housing market, the act was extended through December 31, 2012. It was then extended once more by Congress through December 31, 2013. According to the LA Times. “as much as $2 million in forgiven debt for each household was exempted from federal taxes under the 2007 law.”

    With 6.4 million homeowners still underwater on their mortgages, meaning they owe more on the loan than the property is worth, the government aid is still very much needed. However, despite bipartisan support, the law expired at midnight on Tuesday, December 31st and wasn’t extended because lawmakers were home for the holidays.

    All hope is not lost however, as pending legislation in the House and Senate would extend the Mortgage Debt Forgiveness Relief Act through 2015, the LA Times reports. Such an extension could be passed retroactively, going into effect January 1st, as it was last year.

    The extension of the act would not only alleviate tax burdens for homeowners, it would help keep the housing recovery alive. The legislation for extension is backed by the Mortgage Bankers Association and the National Association of Realtors, to name a few.

    Seeing as the health of the housing market is indicative of that of the overall economy, lawmakers will hopefully do whatever they can to extend the act—ensuring the housing recovery is sustainable rather than a fleeting resurgence.

    Mortgage Debt Forgiveness Relief Act 2014 by HouseHunt

    Related Posts

    • Top 5 Tax Breaks for Real Estate Agents
    • First-time home buyers reportedly losing interest in short sales
    • 14 Ways to Build Client Loyalty

    Hi Mark,
    Thanks for your comment. Good luck with the new home! We hope the act gets extended as well, many a homeowner needs a break!

    When will we know if these guys (Congress) are going to pass the extension or just let 6 million go down in flames? What s the hold up and why should it end before it is finished? We still have millions of Americans twisting in the wind. I am a REALTOR® and I have clients waiting for this act with Open escrows and just waiting for the bank to ok an all cash offer at nearly market price. They have passed it around the departments for weeks on end, waiting, as well, for Congress to act. Most people at that point in their lives don t have a pot to pee in or the window to throw it out of! Taxing poor people for market failures caused by lousy policies is just a way to shift the blame onto their backs. I am conservative but even I would call these folks victims. So, Congressmen Congresswomen, put aside your numerous perks for a minute and pass the extension of the Mortgage Debt Relief Act!

    Allan, we agree, the passage of this act would aid thousands of homeowners. We hope it passes ASAP!

    I found out in February of this year that Wells Fargo had forgiven my mortgage on my home. I had been behind for 4 months and when I contacted them to make payment, I was told that they had written off the debt and would pursue no claims to the property. I was told that they notified the Recorder of Deeds for my county that they had no further interest in the property. I immediately went to the Recorder of Deeds office to obtain a copy of Satisfaction Piece.

    Wells Fargo also said they would be sending me a 1099 which I have not received as of today. Should the 1099 be for 2013, or am I to expect one in December of this year? The Satisfaction Piece was dated December 20, 2013 and recorded on December 31, 2013.

    I have been going thru foreclosure forever and now they are saying I can get a deed in lieu instead is this covered by the mortgage debt relief program if they reinstate it for another year greentree can t give me any answers on this and I haven t got a reply back from the IRS either. Can you give me an answer so I don t make a mistake and have to pay taxes on it

    Hi Nancy,
    Your best bet is to do some research. The government and/or bank are probably not going to grant you a deed in lieu, they are going to make you short sale and/or pay some amount. And yes, you will be taxed on any amount forgiven because the government counts it as income.
    Please contact a real estate attorney sooner rather than later to make the right decision since we don t have all of the facts about your specific case.
    Best of luck!

    I had a house foreclose and of course lost it in 2008, the IRS is still after me for the remaining $89,000 and take my tax returns and will eventually wage garnishment. the house was sold and the amount was not taken off the amount I so called owe. how do I get this forgiven and who do I contact, I am at a loss and cannot find anyone to go to. help.

    Hi Jason,
    So sorry to hear this has been such a hastle. Since I m not a lawyer, your best bet would be to get in contact with a real estate attorney to sort out the legal issues you re having.
    Sorry I can t be of more help!

    Does anyone know what the extension status? If it does not go through a serious hardship will be layed upon millions of Americans.


    Refinance, Mortgage Refinancing, Debt Consolidation Loan Refinance, Home Equity Loans #free #mortgage #calculator #with #taxes


    #refinance home mortgage

    #

    Mortgage Refinancing
    Mortgage refinancing can serve a number of
    purposes including reducing monthly payments, lowering interest rates and providing the
    opportunity to consolidate existing debts.

    Home Equity Refinancing
    Refinancing can also offer the homeowner the opportunity to utilize the existing equity in their home. For many homeowners the appeal of
    lowering monthly payments is alluring because it increases the cash flow for the homeowners.

    Consolidating Debt
    Do not let another day go by without finding out if you can consolidate your credit card debt.
    Eliminate calls from creditors and avoid credit problems by having a professional consolidate your debt.

    Auto Loan Refinancing
    Refinance.org also provides a wealth of
    information for those who might be interested in more information on how to get better auto loans. The process of refinancing an auto loan is very similar to mortgage refinancing.

    Student Loan Consolidation and Refinancing
    Recent college graduates often find themselves overburdened with new responsibilities and
    experiences. Obligations to begin repaying student loans can add to the stress these new graduates endure.


    Mortgage Forgiveness Debt Relief Act #todays #mortgage #rates


    #mortgage relief act

    #

    Learn More About the Mortgage Forgiveness Debt Relief Act

    How does the Mortgage Forgiveness Debt Relief Act work? What are the qualifications? What forms do we file with our taxes?

    My wife and I purchased a home in 2005. The interest rates shot up out of control and needless to say we lost our home in 2009. We are filing our taxes for 2009. At first when we filed we were told we owned $35,000 to federal and state. I did some research and came across the Mortgage Forgiveness Debt Relief Act of 2007. The problem is we had a duplex. Does the debt relief act of 2007 protect home owners who lived in rental properties they owned? The loan balance was $167,900 and the bank sold the property for $30,600.

    Read full question

    Published: Feb 12, 2010 Updated: Jun 30, 2015

    • Review the tax implications for forgiven debt.
    • Submit IRS Form 982 in a timely manner.
    • Consult with a tax professional, whenever a question of forgiven debt arises.

    Under federal law, a financial institution is required to file a Form 1099-C whenever it forgives or cancels a loan balance greater than $600. This may create a tax liability for the debtor because the canceled debt is considered “income” for tax purposes.

    However, the Mortgage Forgiveness Debt Relief Act of 2007 provides tax relief for some mortgage loans forgiven in 2007 through 2012. The Mortgage Forgiveness Debt Relief Act of 2007 allows taxpayers to exclude income from the discharge of debt on their principal residence .

    The Mortgage Forgiveness Debt Relief Act was originally scheduled to expire at the end of 2012, but Congress and the President acted to extend it through 2013, then again to extend it to 2014. It remains to be seen if they will act again and extend the protections through the end of 2015.

    Regarding your question about the duplex qualifying, I can find no indication in the tax code that would disqualify a duplex from the Mortgage Forgiveness Debt Relief Act if half of the duplex was purchased for and used as your household residence.

    The Mortgage Forgiveness Debt Relief Act of 2007 includes the cancelation of the complete debt. If the mortgage terms were renegotiated, up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). According to the IRS, 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.

    IRS Form 982

    The amount of debt forgiven must be reported on Form 982 and this form must be attached to the taxpayer’s tax return.

    You qualify for the Mortgage Forgiveness Debt Relief Act if the home was your principal residence. If so, be sure to report the canceled/forgiven amount on Form 982, and include that form with your income tax return. See the IRS document “The Mortgage Forgiveness Debt Relief Act and Debt Cancellation ” for more information. Whenever a Form 982 is required, I recommend that professional tax help is used to ensure the form is filled out properly.

    I hope this information helps you Find. Learn & Save.


    How to Avoid Taxes on Canceled Mortgage Debt – TurboTax Tax Tips & Videos #karls


    #mortgage relief act

    #

    How to Avoid Taxes on Canceled Mortgage Debt

    The Internal Revenue Service considers most cancelled debts as income for the recipient. The amount of a loan or mortgage forgiven by a lender is taxed as though the borrower earned that amount as income, says Cappy Pearson, tax preparation specialist. However, the Mortgage Debt Relief Act does allow an exemption for certain mortgage or foreclosure situations.

    Adding forgiven debts to income

    If your forgiven debt is subject to taxation, you will usually receive a form 1099-C, Cancellation of Debt, from the lender, showing the amount of canceled debt. You ll file the 1099-C with your federal tax return, and the amount of canceled debt is added to your gross income.

    There are, however, exceptions and exclusions that may save you from the requirement to report canceled debt as part of your income.

    Exceptions and exclusions

    Not all canceled debt is subject to income tax. The IRS recognizes both exceptions to canceled debt rules as well as amounts that are excluded from gross income due to their origin.
    Exceptions include:

    • Gifts, bequests or inheritances
    • Some qualified student loans
    • Any debt that, had it been paid, would have been a deductible item for the borrower
    • A qualified reduction in price offered by a seller
    • Certain payments on the balance of a mortgage under the Home Affordable Modification Program

    When a loan is secured by property, such as a mortgage where the home and land stand as collateral, and the lender takes the property as full or partial settlement of the debt, it is considered a sale for tax purposes, not a forgiven debt. In that case, you may need to report capital gains or losses on the sale of the property, but you will not need to add forgiven debt to your income.
    Exclusions include:

    • Debt canceled in a Title 11 bankruptcy or during insolvency
    • Canceled qualified farm debt
    • Canceled qualified real property business debt
    • Principal residence indebtedness under terms of the Mortgage Debt Relief Act (2007 through 2016). This can also apply to debt that is discharged in 2017 provided that there was a written agreement entered into in 2016.

    If you claim an exclusion, you can t claim tax credits or capital losses or otherwise improve your tax situation using the excluded property.

    The Mortgage Debt Relief Act of 2007

    Applying only to your principal residence, the Mortgage Debt Relief Act excluded as income any debt discharge up to $2 million. Provisions of the Act applied to most homeowners, and it included partial debt relief gained through mortgage restructuring as well as full foreclosure. Refinancing was also allowed, but only up to the amount of principal balance of the original mortgage.

    The Act also covered loans and subsequent debt forgiveness for amounts borrowed to substantially improve a principal residence. You cannot use provisions of the Act for other canceled debts, and the relieved debt must be secured by the principal residence property. The Act covered debt forgiven within the calendar years of 2007 to 2016. This can also apply to debt that is discharged in 2017 provided that there was a written agreement entered into in 2016.

    Extension of the Mortgage Debt Relief Act

    The Act initially covered a three-year period between 2007 and 2010, but was extended four times, to 2012, 2013, 2014 and then to 2016. This can also apply to debt that is discharged in 2017 provided that there was a written agreement entered into in 2016.

    Another way around the tax bite

    If you re not covered by the special tax break for principal residences described above, there are two very important exceptions to the cancelled debt = taxable income rule.

    The cancelled debt is not income, even if you receive a Form 1099-C, if

    1. You received the cancelled debt due to bankruptcy filing, or
    2. To the extent you are insolvent immediately before the cancellation of the debt.

    Insolvency means your debts exceed the value of all your assets. You can exclude cancelled debt from income up to the amount that you are insolvent. For example, if you had assets of $80,000 and debt of $100,000, you are considered to insolvent by $20,000. If you had $30,000 in debt cancelled at this time of insolvency, you would have to include only $10,000 ($30,000 minus $20,000) in your income.

    Cancelled debt can be a challenging tax situation especially during hard financial times. TurboTax will guide you through the cancelled debt maze, including the new legislation, and help minimize the pain from in these tough situations.

    Get every deduction
    you deserve

    TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.

    The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

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