the Tax Break for Mortgage Forgivenes
March 24, 2009
Former President Bush signed into law a measure giving tax breaks to homeowners who have mortgage debt. Under preexisting law, the debt forgiven by a lender(such as short sales and refinances) was generally taxable to the borrower as debt discharge income. In the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer does not have to pay federal income tax on debt that’s been forgiven for a loan secured by a qualified principal residence.
This tax break applies to debts discharged from January 1, 2007 to December 31, 2009. Qualified principal residence indebtedness is debt incurred in acquiring, constructing, or substantially improving the residence (up to $2 million for refinances).
For purposes of calculating capital gains, any debts discharged excluded from income under the new law must be subtracted from the basis of the taxpayer’s principal residence (but not below zero). However, taxpayers may generally exclude from capital gains income up to $250,000 (or $500,000 for married couples filing jointly) for properties owned and used as their principal residence for at least two of the last five years.
Disclaimer: this is merely a informational article and should not be considered an advise, consumer should always look for a professional in law and or income taxes for advise.
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