The mortgage debt relief act that was put into effect in 2007 helped a lot of people with foreclosure relief. It allowed people to exclude the “income” they earned on the debt that was forgiven when their home was foreclosed. It isn’t that simple however, there are tax forms that need to be filled and certain other types of debt are handled differently depending on how they were forgiven.
It’s important to remember that the cancelled debt that is considered income isn’t always taxable. Bankruptcy debt is one of those cases as well as debt that’s been forgiven on a persons main residence or home. Debt forgiven on a second home however is still taxable. Debt from credit cards and car loans is also not excluded. forgiven debt from student loans is sometimes forgiven depending on certain factors as well, but you should see advice from someone who does taxes to make sure.
This mortgage forgiveness debt relief act is in place until 2012 which should give most family’s enough time to get back on their feet. There is a limit however to the amount of money that can be forgiven on a principle residence. The number is quite high at $2 million dollars. Most family’s primary residence should easily fall under the $2 million dollar cap. If you are married and filing separately then the cap is cut in half and is only $1 million per person.
Just because the debt is forgiven and not being taxed doesn’t mean you don’t have to report it at all. The government is still making you report it on your taxes with a Form 982. For information on completing the form you should consult a tax attorney. You’ll know for sure if the debt is forgiven because the bank will send you a 1099-C form. The C obviously stands for cancellation of debt.
This isn’t the only relief act however. Aside from the national foreclosure relief act, the federal foreclosure relief act and HOPE which allows homeowners to get their mortgage lowered with comparison to the new appraisal price.
Related posts: