HARRIS REAL ESTATE UNIVERSITY Students (and future students). Share this article with all of your clients, share on Facebook?share everywhere.
It is absolutely critical that your clients understand that the Mortgage Debt Relief Act of 2007 is set to expire at the end of 2012. Let your underwater owners know that they need to take action now before this act expires.
NOTE: Agents, NEVER give accounting or legal advice. When a client has a legal or tax related question refer them to the appropriate professional. Additional information is available from IRS.gov.
A tax tip from IRS.gov
Canceled debt is normally taxable to you, but there are exceptions. One of those exceptions is available to homeowners whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012.
The IRS would like you to know these 10 facts about Mortgage Debt Forgiveness:
1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
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5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes ? for example, to pay off credit card debt ? do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions ? such as insolvency ? may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit?www.irs.gov. IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments, is also an excellent resource.
You can also use the Interactive Tax Assistant available on the IRS website to determine if your canceled debt is taxable. The ITA takes you through a series of questions and provides you with responses to tax law questions.
Finally, you may obtain copies of IRS publications and forms either by downloading them from?www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
Links:
Form 982
Form 1099-C
Publication 4681
Remember that all of the web page addresses for the official IRS website, IRS.gov, begin with http://www.irs.gov. Don?t be confused or misled by Internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is http://www.irs.gov/.
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