The Mortgage Forgiveness Debt Relief Act of 2007 changed tax rules so that when mortgage debt is forgiven by a lender -- as in a short sale, foreclosure or debt restructuring of a property -- the amount forgiven is not considered part of the taxpayer’s gross income and therefore not subject to income tax, as had been the case previously.
The debt must have been incurred to buy or improve a principal residence (rather than a second home), and the exclusion only applies to indebtedness forgiven from January 1, 2007 through December 31, 2012.
The excludable amount of debt is limited to $2 million or $1 million for married filing separately. Other restrictions apply, so be sure to consult a knowledgeable tax professional for all the details. You can also go online to www.IRS.gov and enter the words "Mortgage Forgiveness Debt Relief Act" in the search window.
A newly revised Form 982 is used for reporting the exclusion.
Friday, June 5, 2009
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Thanks alot for the great post but i think mortgage forgiveness debt relief act is a lifesaver for some taxpayers
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