Homeowners whose mortgage debt was partly or entirely forgiven in calendar years 2007 through 2012 (and who received a “1099” from their lender) may be able to claim special tax relief by filling out Form 982 and attaching it to their federal income tax return, according to the Internal Revenue Service.
Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007 (modified in 2008 and EXTENDED through 2013) taxpayers may exclude debt forgiven on their principal residence if their loan balance was $2 million or less.
The limit is $1 million for a married person filing a separate return. Details are on Form 982 and its instructions, available now on the IRS website.
“The new law contains important provisions for struggling homeowners,” said Acting IRS Commissioner Linda Stiff. “We urge people with mortgage problems to take full advantage of the valuable tax relief available.”
As noted above, the original law applied to debt forgiven from 2007 through 2012 – but as a result of the "fiscal cliff" settlement in late December, will continue in full force and effect for debt forgiven through the end of calendar year 2013. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief.The debt must have been used to buy, build or substantially improve the taxpayer's principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.
Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for relief under the “Mortgage Forgiveness Debt Relief Act”. HOWEVER, other kinds of tax relief are still available for debts of this nature, particularly if the taxpayer can claim “insolvency” during the year in which the particular debt was forgiven. (See IRS Form 982 for details).
Borrowers whose debt is reduced or eliminated typically receive a year-end statement (Form 1099-C) from their lender. For debt cancelled in 2007, the lender was required to provide this form to the borrower by Jan. 31, 2008. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.
The IRS urges borrowers to check the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. Borrowers should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for their home (Box 7).
No comments:
Post a Comment