Tax 'Relief' Act? -- HOW DO YOU SPELL RELIEF? (debt, pay, refinance)

[Zelva]

Mortgage Forgiveness Debt “Relief” Act of 2007

Normally, as I understand it, if your house if foreclosed on, and sold for less than you owed, the difference (forgiven or canceled debt) becomes “income” for tax purposes – you get a 1099 for the difference. (go figure)

The Mortgage Debt Relief Act of 2007 ‘helped’ in this area – however, it says, that unless the debt forgiven was used for significant home improvements*, the Act does not apply. How is that different than before the Mortgage Forgiveness Debt Relief Act? What’s the difference between capital gains and canceled debt then? So… if you gain, you pay taxes; and if you lose, you pay taxes?

IRS publication on the Act - FAQs:
"Does the Act apply to -ALL- forgiven or canceled debt?
NO. The Act applies -only- to forgiven or canceled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes.”

Sorry I don’t know much about this stuff – but how is this much “relief” from canceled debt being treated as TAXABLE income? How do you spell RELIEF?

[Tallysmom]

Originally Posted by Zelva

Mortgage Forgiveness Debt “Relief” Act of 2007

Normally, as I understand it, if your house if foreclosed on, and sold for less than you owed, the difference (forgiven or canceled debt) becomes “income” for tax purposes – you get a 1099 for the difference. (go figure)

The Mortgage Debt Relief Act of 2007 ‘helped’ in this area – however, it says, that unless the debt forgiven was used for significant home improvements*, the Act does not apply. How is that different than before the Mortgage Forgiveness Debt Relief Act? What’s the difference between capital gains and canceled debt then? So… if you gain, you pay taxes; and if you lose, you pay taxes?

IRS publication on the Act - FAQs:
"Does the Act apply to -ALL- forgiven or canceled debt?
NO. The Act applies -only- to forgiven or canceled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes.”

Sorry I don’t know much about this stuff – but how is this much “relief” from canceled debt being treated as TAXABLE income? How do you spell RELIEF?

As always -- check with a tax guy. That's your safest bet.

If you walked away from a HELOC that you used to buy a car and finance vacations -- your HELOC will not be forgiven.

A lot of people used a HELOC along with a traditional mortgage to buy homes.... that will be forgiven..