Update Feb. 4, 2008 — The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.
This provision applies to debt forgiven in 2007, 2008 or 2009. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t 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.
The amount excluded reduces the taxpayer’s cost basis in the home. More information on claiming this exclusion will be available soon.
The answered questions below are based on the law prior to the passage of the Mortgage Forgiveness Debt Relief Act of 2007.
- What is Cancellation of Debt?
- Is Cancellation of Debt income always taxable?
- I lost my home through foreclosure. Are there tax consequences?
- I lost money on the foreclosure of my home. Can I claim a loss on my tax return?
- Can you provide examples?
- I don’t agree with the information on the Form 1099-C. What should I do?
- I received a notice from the IRS on this. What should I do?
- Where else can I go to get tax help?
For the answers to the above questions, click here.