More and more home owners have experienced mortgage debt forgiveness. If your mortgage debt is partly or entirely forgiven after 2006 and before 2013, you may be eligible for special tax relief. Normally, debt forgiveness results in taxable income; however, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million ($1 million for married filing separate) of qualified principal residence indebtedness.
Debt reduced through mortgage restructuring and mortgage debt forgiven in a foreclosure may be excluded. To qualify, the debt must have resulted from buying, building or substantially improving your principal residence. It also must be secured by that residence. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualifies for the exclusion.
Proceeds of refinanced debt used for other purposes, such as paying off credit cards, do not qualify for the exclusion. Debt forgiven on second homes, rental property, business property, credit cards or car loans also do not qualify for this tax relief provision. However, these situations may qualify under bankruptcy, insolvency or as qualified business use real property.
In the year your debt is reduced or eliminated, your bank should send you Form 1099-C, Cancellation of Debt. Bring it to your tax appointment so the required forms can be filed.
Live in the Tampa area and want to find out more about me...CHECK OUT MY WEBSITE
No comments:
Post a Comment