Q: Part of my home mortgage was recently forgiven. What effect will this have on my taxes?
A: Normally, any debt forgiveness that homeowners receive would result in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, if your debt is partly or entirely forgiven during 2007, 2008 or 2009 you may be able to exclude up to $2 million of debt forgiven on your principal residence if you qualify. For a married person filing a separate return the limit is $1 million.
The debt must have been used to buy, build, or substantially improve your principal residence and must have been secured by that residence.
If your debt is reduced or eliminated your lender should send you a year-end statement (Form 1099-C) that shows the amount of debt forgiven and the fair market value of any property given up through foreclosure. You can then claim the relief by completing Form 982 and attaching it to your federal income tax return.
Crystal Faulker is a C.P.A. with Cooney, Faulkner, and Stevens, LLC - Certified Public Accountants | Business Advisors.NOW IT'S YOUR TURN! GOT A FOLLOW-UP QUESTION, OR DO YOU HAVE ADDITIONAL ADVICE? POST IT BELOW BY CLICKING 'ADD A COMMENT'.
Do you have your own question for our experts?
