IRS Tax Tips

By
Real Estate Agent with RE/MAX Agents Realty

Ten Facts about Mortgage Debt Forgiveness 

If your mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income. Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.

  1. 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 of debt forgiven on your principal residence.
  2. The limit is $1 million for a married person filing a separate return.
  3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
  4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
  5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
  6. Proceeds of refinanced debt used for other purposes - for example, to pay off credit card debt - do not qualify for the exclusion.
  7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
  8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions - such as insolvency - may be applicable. IRS Form 982 provides more details about these provisions.
  9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
  10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit IRS.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. Taxpayers may obtain a copy of this publication and Form 982 either by downloading them from IRS.gov or by calling 800-TAX-FORM (800-829-3676).

 

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Posted by

Dallas Chambers

RE/MAX Agents Realty

Office:  770-922-7777 X316

Cell:     770-595-1541

Web: www.dallasc.remax-georgia.com

E-Mail:  dallasc@remax.net

Each Office Independently Owned and Operated.  All information deemed reliable but not guaranteed.

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Felix Hung 03/10/2010 02:23 AM
  2. Wallace S. Gibson, CPM 03/10/2010 05:04 AM
Topic:
Lending / Financial
Location:
Georgia
Tags:
short sales
bank owned
foreclosed properties
first time homebuyer
first time homebuyers tax credit
irs tax tips

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Show All Comments
Rainmaker
848,740
Tim Lorenz
TIM LORENZ - Elite Home Sales Team - Mission Viejo, CA
949 874-2247

Good info for those who have had to sell by short sale and may have a tax problem.

Mar 10, 2010 12:23 AM #1
Rainmaker
1,345,674
Vickie Nagy
Vickie Nagy, Broker Associate Realty ONE Group BMC Associates | BRE#01363932 - San Ramon, CA
Broker for San Ramon, Danville, Dublin, Pleasanton

Great informaiton Dallas. I know my broker is always pounding 'don't give tax advice'...but this isn't. It's stating facts that are very informative. Powerful stuff!

Mar 10, 2010 12:23 AM #2
Rainmaker
80,170
Kimberly Thurm
Koenig & Strey Real Living, Naperville, IL - Naperville, IL
Broker Consultant / Relocation Specialist ABR, CRS, GRI, SFR

Very timely!  There is a lot of uncertainty out there and this sure helps or at least points in the right direction, thanks.

Mar 10, 2010 12:46 AM #3
Rainmaker
159,680
Lupe Soto
Equistar Realty Group - Burbank, CA
Lupe Soto GLOBAL Real Estate Agent International.

good time to talk about it. tax season.

Mar 10, 2010 01:31 AM #4
Rainer
20,735
Felix Hung
Help-U-Sell Irvine Realty - Irvine, CA

Dallas, this was well worth a reblog. Thanks for the information and perfect timing. YOU ARE DEFINITELY THE AREA EXPERT in Conyers!

Mar 10, 2010 02:42 AM #5
Rainmaker
384,240
Catherine "Cathy" Chaudemanche- Edison
Metuchen Keller Williams Elite Realty / Middlesex County, NJ - Edison, NJ
Real Estate & Middlesex County in NJ

"IRS Tax Tips"

Don't tell me it is this time of the year yet...:)

Mar 10, 2010 05:13 AM #6
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Dallas Chambers

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