It's tax season, and that means it is time to start getting your information together and figuring out all the new rules that are going into effect. One of the new rules, happily, is a bit of tax relief for those that have receive mortgage debt foregiveness. Inman News reports on this new tax rule:
Under the new rule, taxpayers can exclude up to $2 million of mortgage debt forgiven in 2007, 2008 or 2009 on their principal residence. (The limit is $1 million for a married person filing a separate return.) According to Smith, mortgage debt reduced through restructuring, as well as mortgage debt forgiven in connection with a foreclosure, both qualify for the tax exclusion.
Before, if you had received some sort of mortgage debt forgiveness, you had to count that money as income. Even though you never saw a penny of it.
Honestly, I think this tax relief should permanent, rather than temporary through 2009. I mean, the reason you need mortgage debt foregiveness is because you can't make a payment. So why would you be able to pay taxes on money you never saw and never used. It's a little strange.
At any rate, there are caveats. Money you take out for cash during a refinance doesn't count. And the money you were forgiven has to have been for buying a home, building one, or making home improvements. And it has to be on a primary residence.
For more information, I recommend contacting the IRS or speaking with a knowledgable tax attorney or accountant.
