Debt Cancellation Tax Tag

14 Mar Tax Fact 5-Refinance Debt for Improvements is Excludable

IRS tax fact number 5 tells us that refinanced debt proceeds used for the purpose of substantially improving your personal residence qualify for exclusion from income if the debt is later is cancelled. In other words, if you re-finance your principal residence home mortgage and use the excess funds (the portion not used to pay off your old mortgage) for substantial improvements to your home, any of that debt, if cancelled, qualifies for the exclustion. The use of loan proceeds is clearly important in determining whether or not later debt cancellation results in taxable income.
Read More

13 Mar Tax Fact 4-Only Certain Mortgage Debt Qualifies For Exclusion

Mortgage debt forgiveness is considered to be income unless it is excluded. Principal residence debt has its own exclusion from income if it is cancelled or forgiven by the lender. To “qualify” it must be what is defined by the Internal Revenue Service as “qualified principal residence debt”. The debt must have been used to buy, build or substantially improve the principal residence of the taxpayer and the home must act as security for the debt. With the substantial increase in home prices that occurred over the ten years beginning in 2000, many people sought to access this “residential piggy bank” by refinancing their home.
Read More

10 Mar Tax Fact 1-The Mortgage Forgiveness Debt Relief Act of 2007

The IRS wants taxpayers to know about the Mortgage Forgiveness Debt Relief Act of 2007. In the waning weeks of 2007, Congress passed and President Bush signed into law this remedial legislation. Initially limited to tax years 2007, 2008 and 2009, the law was intended to prevent debt cancellation tax for unfortunate home owners who lost their home to foreclosure. Congress, as part of the stimulus legislation passed in 2009, extended the life of the statute through tax year 2012. Limitations on this statute and details of debt cancellation tax will be explored in later articles. However, it is important to note that the statute, which amended the tax code, added a specific exemption for home loans and forgiveness of debt up to two million dollars when the taxpayer’s principle residence is involved.
Read More

09 Mar Ten Tax Facts About Mortgage Forgiveness

Home foreclosure numbers are growing despite (inadequate) government efforts to stem the tide. Due to falling prices and a floundering economy more homes are likely to be lost in the future. The Mortgage Forgiveness Debt Relief Act of 2007 provides some relief from possible tax liability associated with foreclosure. With this in mind, the IRS has published a list of ten facts it wants taxpayers to know about debt cancellation associated with Mortgage Foregiveness. In the words of the IRS, direct from their website:
Read More