Understanding the Benefits of The Mortgage Debt Relief Act 2010
Article by Mortgage Guru
The Mortgage Debt Relief Act 2010 is in reality a debt relief option that is offered to you by the government to help you navigate through the current rough economic patch. Under federal law, if a creditor forgives a loan balance that is larger than 0, the creditor would have to fill up Form 1099-C to record this forgiven debt. This forgiven debt would then be considered as taxable income for the debtor. But with the existence of the Mortgage Debt Relief Act 2010, the federal government has been generous enough to write off up to million of forgiven debt on your principal home for your taxable income calculation purposes. The limit is nevertheless capped at million if you are a married person that is filing a separate return from your spouse, but it still does reduce your tax liability considerably.
With the existence of this act, from the tax years of 2007 all the way up to 2012, if you have mortgage debt that has been entirely or partly forgiven, you can now apply for a special tax relief for this forgiven debt. This includes the mortgage debt that has been compromised through methods such as mortgage modification, mortgage restricting programs as well as debt that has been forgiven through foreclosure proceedings. To be eligible for this tax relief program, your mortgage debt must have been utilized to, buy, construct, renovate or improve your principal residence. In other words, your debt must have been used to purchase or better your principal mortgage, with no exceptions to this clause. Those who have utilized refinanced debt proceeds (for instance home equity loans or home equity line of credit loans) to improve or renovate their principal residences are also considered eligible for this tax exclusion.
For reporting purposes, the amount of forgiven debt must be reported with the use of Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness). You could obtain this form by downloading a copy from the IRS.gov website or by contacting 800-829-3676 to request for your copy. This form would be submitted with the taxpayer