Mortgage Forgiveness Debt Relief Act

The Mortgage Forgiveness Debt Relief Act recently extended to cover tax years 2015 and 2016.  https://www.nar.realtor/news-releases/2015/12/national-association-of-realtors-applaud-passage-of-tax-extenders-package

Does the cancellation of a debt result in taxable income?  Yes, if you owe a debt  to someone and they cancel or forgive that debt, the canceled amount may be taxable income to you.   Some exceptions to this general rule were set forth in my earlier blog post on this subject. The taxpayer should receive a 1099-C Cancellation of Debt.  This cancellation of debt is also reported to the IRS.

However, there is some good news for homeowners who have gone through a mortgage foreclosure or short sale.  In December 2007, Congress enacted the The Mortgage  Forgiveness Debt Relief Act of 2007.   Generally, the Act allows taxpayers to exclude income from the discharge of debt on their principal residence as the result of a mortgage modification, mortgage foreclosure or short sale. The Act applies to  up to $2 million of mortgage debt ($1 million if married filing separately) forgiven in calendar years 2007 through 2013. Subsequently, Congress extended the Act to mortgage debt forgiven in tax year 2014.

Contact Chicago CPA and attorney Brian J. Thompson for legal advice re the Mortgage Forgiveness Debt Relief Act.