Quickbooks, Bookkeeping and Accounting Blog

The Mortgage Forgiveness Debt Relief Act of 2007, signed into law by president Bush on December 20, 2007, enables homeowners to refinance their mortgages without paying taxes on debt forgiven in the process.  Information about this Act follows:

• What is the current law guiding mortgage forgiveness?
  Under the current law, if your house declines in value and your bank forgives a portion of your total mortgage, the amount forgiven counts as taxable income.
• What does the The Mortgage Forgiveness Debt Relief Act of 2007 do?
  This Act enables homeowners to refinance their mortgages without paying taxes on debt that is forgiven. The goal of this Act is to make it easier and more affordable for people to refinance their homes and thereby lower their mortgage payments.
• What years is the new law in effect for?
  The Act applies to all debt forgiven in calendar years 2007, 2008 and 2009.
• Does the Mortgage Forgiveness Debt Relief Act of 2007 apply to second homes?
  No. Only debt forgiven on your principal residence can be excluded.
• Is there a cap on the value of the loan the Act applies to?
  The balance of your loan must be less than $2 million ($1 million for a married person filing a separate return) in order to take advantage of this Act.
• How do I claim this tax relief?
  To claim this tax relief, simply attach Form 982 to your federal tax return.
• Why don’t I see anything about this in my tax preparation software or on IRS forms?
  Because the Mortgage Forgiveness Debt Relief Act of 2007 was not enacted until late December, reporting procedures for this change in law were not able to be incorporated in tax prep software or in IRS forms.
• How will I know if my debt was reduced or eliminated and by how much?
  You will receive a Form 1099-C stating the amount forgiven and the fair market value of the property given up through foreclosure from your lender.