Sunday, January 06, 2013

Debt Relief Act Extended

The Mortgage Forgiveness Debt Relief Act was introduced in Congress on September 25, 2007, and became law on December 20, 2007. This act offers relief to homeowners who would formerly owe taxes on forgiven mortgage debt after facing foreclosure.

The act extends such relief for three years, applying to debts discharged in calendar year 2007 through 2009. (With the Emergency Economic Stabilization Act of 2008, this tax relief was extended another three years, covering debts discharged through calendar year 2012.) In the eyes of the Internal Revenue Service, housing debt that is forgiven or written off is the same as income.

If the law had expired last week, forgiven mortgage debt would be taxable. The same applies to foreclosures and to loan modifications in which principal is reduced. Once the lender writes off the debt, it will report the amount to the IRS. Homeowners should expect to receive Form 1099-C showing the canceled debt amount. Part of the new year's Fiscal Cliff deal extended the Mortgage Forgoveness Debt Relief Act.

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