Tips For Mortgage Debt Forgiveness

Tax season is almost upon us which means there are some concerns with canceled debts. If you have undergone debt consolidation or another type of debt relief program you may wonder what is taxable. It should be mentioned that canceled debt is typically taxable; however, there are suggestions with regards to mortgage debt forgiveness.
Homeowners who underwent partial or full debt forgiveness during 2007 to 2012 may find they are not going to be taxed for the mortgage debt forgiveness. The IRS has provided 10 facts about mortgage debt forgiveness to better help your taxes this year. Keep in mind that it is always best to speak with an accountant to ensure you are filing your taxes properly, especially when you have something like mortgage debt forgiveness to worry about.
Debt forgiveness is usually taxable income. Yet, the Mortgage Debt Relief Act of 2007 will help you exclude up to $2 million of debt that was forgiven on your principal residence. Basically your credit card debt will not be covered as taxable or not taxable income. In fact debt consolidation options are not going to affect your taxes. If you file a separate return as a spouse you will find the limit is only $1 million.
Debt that was reduced by mortgage restructuring or mortgage forgiveness on a foreclosure is also excluded from taxes.
As mentioned, the mortgage debt forgiveness concept allows you to exclude canceled debt from your taxes, but you need to qualify. The debt that was cleared means any income from it would need to be used to buy a new home. If you did not buy a ready made home then building or improving your principle residence with that income would be acceptable.
Any refinanced debt income that you obtain needed to be used for improving your residence if you want to exclude that money as income. If you used any money you received from the forgiveness or restructuring of the loan to pay off credit cards or other debt it will not be excluded in your taxes.
In other words, with your mortgage debt forgiveness where you may have been given income to help you buy a new home or keep the one you have, if you had excess money from the situation it had to go back into your home and not to another debt.
There is a special form to fill out if you are excluding any money from your income due to debt forgiveness. It is important to use the Form 982, which is another reason an accountant is a good idea in this type of situation.
Given that there are other types of debt relief it is important that you understand what will or will not affect your taxes. From the above you know money used from debt forgiveness on your home will be excluded, but not debt relief for your credit cards. Any extra income of that nature needs to be recorded. If the debts are canceled without an increase in income then you do not have to worry.