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Old 08-27-2008, 09:15 AM
 
Location: meridian, idaho
215 posts, read 684,005 times
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I'm pasting the information from the IRS website regarding debt forgiveness for mortgages...hopefully this helps some people
Mortgage Forgiveness Debt Relief Act

What is the Mortgage Forgiveness Debt Relief Act of 2007?
The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.
What does that mean?
Usually, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. The Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude certain cancelled debt on your principal residence from income.
Does the Mortgage Forgiveness Debt Relief Act of 2007 apply to all forgiven or cancelled debts?
No, the Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes.
What about refinanced homes?
Debt used to refinance your home qualifies for this exclusion, but only up to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified.

Does this provision apply for the 2007 tax year only?
It applies to qualified debt forgiven in 2007, 2008 or 2009.

If the forgiven debt is excluded from income, do I have to report it on my tax return?
Yes. The amount of debt forgiven must be reported on Form 982 and the Form 982 must be attached to your tax return.

Do I have to complete the entire Form 982?
Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Adjustment), is used for other purposes in addition to reporting the exclusion of forgiveness of qualified principal residence indebtedness. If you are using the form only to report the exclusion of forgiveness of qualified principal residence indebtedness as the result of foreclosure on your principal residence, you only need to complete lines 1e and 2. If you kept ownership of your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence indebtedness, complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return.

Where can I get this form?
You can download the form at IRS.gov, or call 1-800-829-3676. If you call to order, please allow 7-10 days for delivery.

How do I know or find out how much was forgiven?
Your lender should send a Form 1099-C, Cancellation of Debt, by January 31, 2008. The amount of debt forgiven or cancelled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown in box 2 will generally be the amount that you enter on lines 2 and 10b, if applicable, on Form 982.

Can I exclude debt forgiven on my second home, credit card or car loans?
Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt incurred for those purposes qualifies for this exclusion.

If part of the forgiven debt doesn't qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision?
Yes. The forgiven debt may qualify under the "insolvency" exclusion. Normally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent. A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982.

Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income?
There is no dollar limit if the principal balance of the loan was less than $2 million ($1 million if married filing separately for the tax year) at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982, page 4.

Is there anything else I need to know before filing?
Yes. Because the Mortgage Forgiveness Debt Relief Act of 2007 was passed so late in the year, the software systems used by tax preparers and at the Internal Revenue Service need to be updated to accept the revised Form 982. The IRS expects to be able to process the new Form 982 electronically on March 3, 2008.

Accessibility | FirstGov.gov | Freedom of Information Act | Important Links | IRS Privacy Policy | U.S. Treasury
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Old 08-31-2009, 10:48 AM
 
1 posts, read 21,506 times
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Is there a way to restore your credit once you have received a loan modification from your lender?
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Old 08-31-2009, 09:24 PM
 
Location: Baltimore, MD
205 posts, read 725,829 times
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Quote:
Originally Posted by kristinl5 View Post
Does this provision apply for the 2007 tax year only?
It applies to qualified debt forgiven in 2007, 2008 or 2009.
I know there's a reported frenzy in the market due to the $8k tax credit deadline approaching (I still expect it to be extended). However, I wonder if sellers are aware that the Mortgage Debt Forgiveness Act is going to expire soon too? That would pair a buying frenzy with a selling frenzy. This could be an interesting fall...
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Old 09-01-2009, 04:44 AM
 
3,576 posts, read 5,902,769 times
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Quote:
Originally Posted by BigDragon View Post
I know there's a reported frenzy in the market due to the $8k tax credit deadline approaching (I still expect it to be extended). However, I wonder if sellers are aware that the Mortgage Debt Forgiveness Act is going to expire soon too? That would pair a buying frenzy with a selling frenzy. This could be an interesting fall...
The forgiveness ACT of Dec 2007 expires Jan 1st, 2011.

Honestly, anything Congress does, makes the housing market worse. Either you forclose on the home or the homeowners try to ride it out.

There's a reason nobody ever heard of a short sell even though it's been around for decades.

The threat of sending someone a 1099 for debt cancellatation and forcing people to pay ordinary income tax on that shorted amount is a huge deterrent to make people honor their loan obligations.

What this mortgage forgiveness act has done is just throw more and more distressed homes into an already saturated housing listing market, driving prices further down because people think this is their get out of jail card.

A lot of people forget if they had taken out a Home Equity Loan out, that the home equity loan debt is NOT forgiven which the law.
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Old 09-01-2009, 08:26 AM
 
4,542 posts, read 11,542,319 times
Reputation: 3063
Quote:
Originally Posted by davismar View Post
Is there a way to restore your credit once you have received a loan modification from your lender?
Sure, manage your debt properly and pay your bills on time. May take a while, but....
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Old 10-20-2011, 10:56 PM
 
2 posts, read 11,908 times
Reputation: 10
I found myself in this position not to long ago. The mortgage forgiveness debt relief act of 2007 is actually set to expire at the end of 2012. You might want to act soon... considering that some banks are predicting 500-600 days for your house to go through the foreclosure process. Basically, if it takes that long, then your debt won't be forgiven and you'll have to claim that as income tax... bummer.

There is a helpful website that breaks it down.. including your other options and free advice if you need to talk to a counselor - Debt Forgiveness Act | Mortgage Debt Forgiveness Act of 2007

Last edited by mzennburg8; 10-20-2011 at 11:13 PM..
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Old 10-21-2011, 09:55 AM
 
Location: Salem, OR
13,740 posts, read 31,550,338 times
Reputation: 12105
Quote:
Originally Posted by mzennburg8 View Post
I found myself in this position not to long ago. The mortgage forgiveness debt relief act of 2007 is actually set to expire at the end of 2012. You might want to act soon... considering that some banks are predicting 500-600 days for your house to go through the foreclosure process. Basically, if it takes that long, then your debt won't be forgiven and you'll have to claim that as income tax... bummer.

There is a helpful website that breaks it down.. including your other options and free advice if you need to talk to a counselor - Debt Forgiveness Act | Mortgage Debt Forgiveness Act of 2007

Actually you would have to prove insolvency so there still is a way to not have to pay income tax on that amount, it is just a different process.
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Old 10-21-2011, 09:03 PM
 
Location: Snellville, GA
468 posts, read 1,184,044 times
Reputation: 163
Good thread - good responses - good topic for blog fodder
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Old 10-26-2011, 12:54 PM
 
2 posts, read 21,250 times
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Quote:
Originally Posted by peachstatehomegal View Post
Good thread - good responses - good topic for blog fodder

agree!
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Old 10-26-2011, 12:56 PM
 
2 posts, read 21,250 times
Reputation: 10
Quote:
Originally Posted by Silverfall View Post
Actually you would have to prove insolvency so there still is a way to not have to pay income tax on that amount, it is just a different process.

Thanks for the input!!! We may be faced with this!!

Wonder if the debt forgiveness act could be extended...
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