The Mortgage Forgiveness Debt Relief Act was introduced in the United States Congress on September 25, 2007, and became law on December 20, 2007. This act offers relief to homeowners who would have owed taxes on forgiven mortgage debt after facing foreclosure. The act extends such relief for three years, applying to debts discharged in calendar year 2007 through 2009. (With the Emergency Economic Stabilization Act of 2008, this tax relief was extended another three years, covering debts discharged through calendar year 2012.)
In the eyes of the Internal Revenue Service (IRS), housing debt that is forgiven or written off is the same as income. If the law expires, forgiven mortgage debt will be taxable. The same applies to foreclosures and to loan modifications in which principal is reduced.
Once the lender writes off the debt, it will report the amount to the IRS. Homeowners should expect to receive Form 1099-C showing the canceled debt amount.
All taxpayers, including those who qualify for the exemption, will get the form in the mail if they had debt canceled. Those who qualify for the exclusion will be required to file Form 982 when they file their taxes. The exemption applies only to debt related to a primary home. Mortgages on vacation and rental properties are not exempt under the act. Homeowners who did cash-out refinances and used the money for any other purpose than fixing up their house could still be on the hook for forgiven debt.
However, after the signing of the Mortgage Forgiveness Act, amendments have been made to remove such tax liability and allow the borrower and lender to work freely together to find a common solution that is beneficial to both parties. This protection is limited to primary residences—rental properties are ineligible for relief—so consultation with a tax advisor is necessary to ensure that a borrower qualifies. The amount of forgiven mortgage debt allowed to be excluded from income tax is limited to $2 million per year.
The Mortgage Debt Relief Act of 2007 has been extended for one year to include 2013.
Famous quotes containing the words mortgage, forgiveness, debt, relief and/or act:
“Loosened from the minor’s tether;
Free to mortgage or to sell,
Wild as wind, and light as feather
Bid the slaves of thrift farewell.”
—Samuel Johnson (1709–1784)
“Muhammad is the Messenger of God,
and those who are with him are hard
against the unbelievers, merciful
one to another. Thou seest them
bowing, prostrating, seeking bounty
from God and good pleasure. Their
mark is on their faces, the trace of
prostration....
God has promised
those of them who believe and do deeds
of righteousness forgiveness and
a mighty wage.”
—Qur’An. Victory 48:35, ed. Arthur J. Arberry (1955)
“However patriarchal the world, at home the child knows that his mother is the source of all power. The hand that rocks the cradle rules his world. . . . The son never forgets that he owes his life to his mother, not just the creation of it but the maintenance of it, and that he owes her a debt he cannot conceivably repay, but which she may call in at any time.”
—Frank Pittman (20th century)
“That the townspeople might better see him, the President was persuaded to leave his carriage by the inducement that the ladies wished to get a look at him. ‘By Gad,’ he repied, ‘I’d like to see your ladies,’ and alighted.”
—For the State of New Hampshire, U.S. public relief program (1935-1943)
“The act of birth is the first experience of anxiety, and thus the source and prototype of the affect of anxiety.”
—Sigmund Freud (1856–1939)