Shortsaleopedia

What is the Mortgage Debt Relief Act of 2007?

2

How does the Mortgage Debt Relief Act of 2007 effect my tax return if I complete a short sale?

asked August 12, 2011

4 Answers

0

If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.

The Mortgage 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, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not 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.

Full detail of the plan can be found on the IRS website here: http://www.irs.gov/individuals/article/0,,id=179414,00.html

0

The Mortgage 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, qualifies for the relief.

If the requirements are met the homeowner will be relieved of capital gains tax from the federal tax return.

0

If you qualify for the Debt Relief Act that was enacted in 2007 and extended through out 2012 you would not be responsible to pay taxes on the portion of the loss the bank feels they took and sent you a 1099 on. Some of the most important qualifications are 1) the home is your primary residence 2) the loan(s) you have are purchase money loans or the money taken out was used for the sole purpose to improve the property. You can find a full list of qualifications at IRS.GOV.

0

Generally speaking you will not be liable for tax on the difference between what you owed your lien holders and what they received at Short Sale – however – there are a number of caveats and this needs to be discussed with a qualified tax advisor / CPA.

Your Answer