Home mortgage Debt Relief ACT

Figuring out tax liablity

What is the Mortgage Debt Relief Act?

The best way to explain this is to look at what happened prior to the Mortgage Relief Act: A homeowner finds that he or she can no longer afford their mortgage. At risk of default and foreclosure, the homeowner negotiates with the bank an option that avoids foreclosure (most likely a short sale or Loan Modification). The bank is legally required to report the amount of debt that is forgiven or cancelled to the IRS – the deficiency. The IRS labels this amount as "income." Even though the homeowner is never given any cash from the bank, it must be considered income because it is a credit that is issued to the borrower (owner of the home) from the bank that didn’t previously exist.
The homeowner is now responsible for paying income tax on this amount. In many cases, the tax responsibility can end up being tens of thousands of dollars. It is also true that once this is owed to IRS it cannot be removed through bankruptcy.
For many homeowners in this situation, the amount that they owe in taxes on this newly reported income is impossible for them to afford. All they have done is trade one unmanageable payment for another. With the Mortgage Debt Relief Act, the homeowner is no longer required to pay taxes on forgiven or cancelled mortgage debt.
Does the Mortgage Debt Relief Act apply to all forgiven or cancelled debt?No. Only debt which was forgiven or cancelled on a homeowner’s primary residence is included in the Mortgage Debt Relief Act – so second homes, vacation homes and investment homes are not included. What is the maximum amount of debt than can be forgiven?The maximum amount of debt that is exempt from taxes under the Mortgage Debt Relief Act is $2 million (or $1 million if the borrower is married but filing separately at the time of forgiveness of the debt). What does this mean for you? It means that you have options. Even if you find yourself among the millions of homeowners who are in danger of losing their home to foreclosure and you aren’t even sure if any options are available for you, you can be helped. Fortunately, you are looking for information before time has run out. After the end of this year, you will be unable to take advantage of the Mortgage Debt Relief Act. THIS CAN SAVE YOU THOUSANDS OF DOLLARS. More importantly, it can give you peace of mind and a fresh start on the future.

Fact sheet for mortgage forgiveness debt relief

2007-12-29 19:12:05 by Bubble_Sitter

Act.
"Today, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which will help Americans avoid foreclosure by protecting families from higher taxes when they refinance their home mortgages...This Act will increase the incentive for borrowers and lenders to work together to refinance loans and allow American families to secure lower mortgage payments without facing higher taxes"
Looks like the new law does not cover short sales or foreclosure

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