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Mortgage Workouts, Now Tax-Free for Many Homeowners; Claim Relief on Newly-Revised IRS Form

 

WASHINGTON D.C., US CONGRESS — Homeowners whose mortgage debt was partly or entirely forgiven may be able to claim special tax relief by filling out newly-revised Form 982 and attaching it to their federal income tax return, according to the Internal Revenue Service.

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IMPORTANT! Mortgage Debt Tax Forgiveness and the Federal Law.


Dear Earl and Jerry,

Thank you for writing me to express your support for extending the mortgage debt relief provisions included in the Mortgage Forgiveness Debt Relief Act.  I appreciate hearing from you and welcome the opportunity to respond.

Please know that like you, I strongly believe the federal government must do more to help distressed homeowners and stabilize the housing market. I supported the Mortgage Forgiveness Debt Relief Act (Public Law 110-142) when it was passed in 2007. I also supported the most recent extension of this relief in 2012.  This tax provision allows homeowners to exclude from taxation debt that is forgiven through mortgage restructuring, short sale, or foreclosure.  I have consistently supported this relief because I believe it has stabilized the housing market and helped homeowners who have been most impacted by the housing market crash.

As you may know, this tax relief expired on January 1, 2014.  This means that under current law, mortgage debt that was forgiven on December 31, 2013 will qualify for relief, while debt forgiven on January 1, 2014 or after will not.  I understand your concerns that the expiration of this tax relief comes at a time when many homeowners are still struggling with underwater mortgages or facing foreclosure.  Please know that if the extension of the Mortgage Debt Relief Act comes before me in the Senate, I will be mindful of the continuing struggles of homeowners as I was when I supported earlier extensions of this debt relief.

Once again, thank you for writing. If you have any additional questions or concerns, please do not hesitate to contact my Washington, D.C. office at (202) 224-3841. Best regards.

Sincerely yours,
Dianne Feinstein
United States Senator

Tax Provisions Covered By New Senate Bill Include Mortgage Deductions.

The U.S. Senate passed a bill on Tuesday night that retroactively extends 55 tax provisions, among which are allowing deductions for mortgage insurance premium interest and tax relief on forgiven mortgage debt.


H.B. 5771, originally introduced by U.S. Representative Dave Camp (R-Michigan), Chairman of the House Committee on Ways and Means, on December 1, 2014, passed in the Senate by a 76 to 16 vote on Tuesday night. It passed on the House on December 3rd and the Senate December 17th.

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WASHINGTON, DC  Renewal of important expired federal tax benefits for homeowners took a major step forward recently, but the route to final congressional approval is beginning to look longer — and potentially bumpier — than previously expected.

Here's why. The Senate Finance Committee overwhelmingly approved a package of tax code goodies that includes a two-year reauthorization of the Mortgage Forgiveness Debt Relief Act, plus similar extensions for deductions of mortgage insurance premiums and energy-saving improvements to homes.

Mortgage debt relief is crucial for thousands of underwater owners who receive cancellation of a portion of their principal balances from banks in connection with loan modifications, short sales and foreclosures. Without an extension retroactive to Jan. 1 — which the Senate Finance Committee package includes — these owners would be hit with federal income taxes on the mortgage amounts canceled.

 

As a result, the Mortgage Forgiveness Debt Relief Act is extended. The measure, which passed, will continue to exempt from taxation mortgage debt that is forgiven when homeowners and their mortgage lenders negotiate a short sale, loan modification (including any principal reduction) or foreclosure.

 

"taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was $2 million or less."

 

Debt ball and chainNormally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec. 20, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was $2 million or less. The limit is $1 million for a married person filing a separate return.

“The new law contains important provisions for struggling homeowners,” said Acting IRS Commissioner Linda Stiff. “We urge people with mortgage problems to take full advantage of the valuable tax relief available.”

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. The paper Form 982 is now being accepted, but the IRS reminds affected taxpayers to consider filing electronically, which greatly reduces errors and speeds refunds.tax relief

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).

Debt forgiven on 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.
 

Make the tax laws, newly enacted by Congress, work for you, act today!

Advice

Debt relief and the tax benefits should be a top priority for your family.

 

THE ABOVE INFORMATION IS DEEMED TO BE RELIABLE. BUT AS IN ALL CASES, PLEASE CONSULT WITH YOUR ACCOUNTANT, TAX ADVISER OR ATTORNEY.
 

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