Archive for the 'Taxes' category

Many Homeowners Can Claim Tax-Free Mortgage Workouts on 2007 Taxes

Wednesday, April 30th, 2008

From an article at the IRS Website, announced February 2008:

See the full Article at the IRS website.  This is GREAT news if you went through a short sale in 2007.  Starting in 2008, the law now says that forgiven mortgage debt is NOT income to the individual home owner (this does not apply to investors).  This last-minute law extends that back to 2007, but YOU need to take action to claim it.  You need to know about it, to do that.  And that’s why I’m here.  I keep my eye out for things like this to help you.Talk to your tax preparer to help you avoid this tax if you received a 1099-C form for the forgiven mortgage debt.  Let us know here how it went!  If you have already filed your taxes, you can file an amended tax form, just ask your tax preparer.  And for this particular issue, you really want to go to a professional, the difference in what you will have to pay is many times what the preparer’s fee will be. 

Homeowners whose mortgage debt was partly or entirely forgiven during 2007 may be able to claim special tax relief by filling out newly-revised Form 982 and attaching it to their 2007 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, enacted Dec. 20, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person filing a separate return. Details are on Form 982 and its instructions, available now on this Web site.

“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.”

The late-December enactment means that reporting procedures for this law change were not incorporated into tax-preparation software or IRS forms. For that reason, people using tax software should check with their provider for updates that include the revised Form 982. Similarly, the IRS is now updating its systems and expects to begin accepting electronically-filed returns that include Form 982 by March 3. The paper Form 982 is now being accepted, but the IRS reminds affected taxpayers to consider filing electronically, which greatly reduces errors and speeds refunds.