Upside Down Mortgage

What is The Mortgage Forgiveness Debt Relief Act of 2007?

The  Mortgage Debt Relief Act of 2007 allows taxpayers to exclude income from the discharge of debt on their principal residence. In this bad economic time and rising foreclosure rate, this Mortgage Forgiveness Debt Relief Act comes in handy.

What is meaning of The Mortgage Forgiveness Debt Relief Act of 2007?

The Mortgage Debt Relief Act of 2007 basically provides for when you owe a debt to someone else and they cancel or forgive that debt. Usually when a debt is forgiven, the forgiver can then claim a tax deduction of that canceled debt while the debtor may have to pay taxes on that amount. The canceled debt amount may be taxable. However with this Mortgage Forgiveness Debt Relief Act of 2007 in place, taxpayers may 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.

What Debts are Eligible for the Mortgage Forgiveness Debt Relief Act of 2007?

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.

Where to Get More Information on this Mortgage Forgiveness Debt Relief Act of 2007?

More information, including detailed examples can be found in the IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

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