What exactly is the Mortgage Forgiveness Debt Relief Act, and how does it work?
It's a government assistance plan for homeowners that have had their homes foreclosed on and their debt forgiven. Normally, when you have a lender forgive a debt, you would have to include the amount forgiven as income on your taxes. Under the Mortgage Forgiveness Act, the debt amount forgiven doesn't have to be reported as income. This act was enacted primarily to help those suffering from the recent sub prime lending crash.
Without the Mortgage Forgiveness Debt Relief Act, I would have to report any forgiven debt as income on my tax return. Why do I have to report that as income if I never see any actual money?
Because when your debt is forgiven, the IRS considers it as paid off. Since you no longer owe that amount, the IRS considers that amount as extra income since you no longer are in debt.
Does the Debt Relief Act apply to multiple properties that I own, or only my primary residence?
It only applies to your primary residence. Any other debt forgiveness on other properties you own does have to be reported on your income tax return.
Is the Mortgage Forgiveness Debt Relief Act only available to people who lost their homes because of the sub-prime market, or can any homeowner take advantage of it?
The upper limit of the debt is $2 million, so you probably don't have to worry about that. It can be used on any forgiven debt from 2006-2009. It applies to all debt forgiveness for homeowners during the time period mentioned above.
What if I had refinanced my home? Can I still qualify?
Yes you can, but according to the IRS, the Mortgage Forgiveness Debt Relief only applies to the original principle debt before your home was refinanced.
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Labels: Tax News