IRS Explains Mortgage Relief Provision I found an article from the SILVAR government News today about mortgage relief due to short sale or foreclosure.The IRS has released a technical document (IR-2008-17) to alert taxpayers on how to comply with the new mortgage cancellation tax relief provisions enacted at the end of last year. Borrowers who had some portion of their mortgage debt forgiven in 2007 should receive a Form 1099C from the lender identifying the amount of forgiven debt. The borrower/taxpayer will then file a newly-created form, Form 982, to report to the IRS that the debt relief was for a qualified mortgage. The instructions to complete Form 982 are available at the IRS Web site, which can be accessed here: http://www.irs.gov/pub/irs-pdf/f982.pdf. The mortgage relief provision applies to debt forgiven in 2007, no matter when the mortgage was entered into. The most frequent circumstances in which there is debt forgiveness is on a foreclosure, short sale, mortgage workout or reformation agreed to with the lender.Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, enacted on December 20, 2007, 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 IRS.gov.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. Even the Form 982 is now being accepted, but the IRS recommend those affected taxpayers to file theire tax electronically, which greatly reduces errors and speeds refunds.The cancellation of mortgage debt rules apply only to a limited number of taxpayers. The new law applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. In most cases, eligible homeowners only need to fill out a few lines on Form 982 (specifically, lines 1e, 2 and 10b).The debt must have been used to buy, build or substantially improve the taxpayer’s principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available. See Form 982 for details.The new law is best understood with an example. Assume a family purchased their home for $100,000, with a mortgage of $95,000. Later, they need to sell the home. They find that the value of homes in their area has declined and they can sell for only $89,000. At the time of the sale, the outstanding balance on a mortgage might be, for example, $92,000. Thus, there will not be enough cash at settlement to repay the lender the full balance of the mortgage. In some limited circumstances, a lender might forgive the amount of the balance that exceeds the purchase price ($3,000 in this example).The new provision does not affect current laws that already provide similar rules that grant relief to debt-burdened commercial real estate and rental properties. The new law grants relief for principal residences sold by their owners or to borrowers who arrange a “workout” with a lender that reduces the

Comment posted by Mortgages UK
at 4/11/2008 1:51:48 PM

Its funny how what happens in the US follows a few months later in the uk. The credit crunch has now crossed the pond. Lenders have withdrawn 50% of their products, increased interest rates, increased deposit requirements and the uk has seen the sharpest decrease in house prices during March for 15 years.

Its only going to get worse for the uk.

Comment posted by Mobile Notary Signing Agent
at 4/9/2008 11:45:32 AM

Hello Grace,

This is great information thank you. I have recently been made aware of “Prop 8″ which seems similar to this which is basically property tax relive for declining assessed values. I’m glad to see something is being down about this market.

Comment posted by Laura
at 4/8/2008 4:20:24 PM

A good way to reduce mortgage is getting a loan or Another way is saving money.
laura.
debt management

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at 3/19/2008 7:44:33 PM

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at 2/24/2008 11:03:40 PM

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