Petition to Extend the Mortgage Debt Forgiveness Act
On December 31, 2012 the Mortgage Debt Forgiveness Act of 2007 is scheduled to expire. As a San Jose Real Estate Agent-Broker, who manages many San Jose short sales, I recommend signing the petition to extend the Mortgage Debt Forgiveness Act of 2007.
“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.” Source: irs.gov
With mortgage forgiveness and debt cancellation the income realized by a modification of the terms of the mortgage (short sales modify the terms of a mortgage) is excluded. In other words, the debt relief act allows the exclusion of income on certain cancelled debt on a principal residence.
Mortgage Forgiveness and Debt Relief relates to taxes. Therefore, to fully understand if you qualify to exclude income on cancelled debt on a principal residence, you definitely need to consult with a licensed tax adviser who is well versed in foreclosure tax laws. San Jose short sale agents are not licensed to give tax or legal advice.
IRS Publication 4681 – Rev. 1/24/2011 – Cancelled Debts, Foreclosures, Repossessions, and Abandonments (for individuals) in preparing 2011 Tax Returns.
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