Archive for February, 2012
The Mortgage Forgiveness Debt Relief Act of 2007 allows homeowners to exclude from income certain debts forgive by their lenders.
The window is closing rapidly on one of the most important tax-relief provisions enacted by Congress during the housing crisis to help financially strapped homeowners.
Under the tax code, borrowed money need not be reported as income because you have an obligation to repay. However, if the lender subsequently cancels what you owe, the IRS requires that you report that debt as income because the duty to repay it no longer exists.
Example, if you owe $250,000 and your lender forgives $50,000 of that debt in a $200,000 refinancing, that $50,000 is considered income. If your combined federal and state marginal tax rate is 36%, you would owe $18,000 in taxes.
Unless Congress extends the law, all residential mortgage debt relief that takes place on or after January 1, 2013, will once again be considered taxable income.
For more information please contact me.