The Mortgage Forgiveness Relief Act of 2007 makes certain debts forgiven by banks tax free. Under normal circumstances when a creditor forgives a debt it becomes a taxable event.
Question: What are the forgiven debts?
Answer: Forgiven debts occur when a bank forecloses on the owner’s primary residence and the sale price of the property is less than the amount of mortgage. If also occur when a primary residence is sold on a short sales and the property is sold at tless than the amount of the loan.
Question: How can a homeowner with forgiven debts claim tax exemption?
Answer: Homeowners whose debt was reduced will receive a year end statement Form 1099-C from the lender. The taxpayer will claim the tax benefit in Form 982.
Question: Who are eligible for tax free debt forgiveness?
Answer: Taxpayers may exclude debts forgiven as a result of loan workout, foreclosure or short sale of owners primary residence up to $2 million ($1 million if married filing separate return). Debts forgiven during 2007, 2008, 2009, 2010, 2011 and 2012 qualifies for this tax exemption.
Question: What types of debt qualifies under the act?
Answer: The debt must have been used to buy, build or substantially improve the taxpayer’s principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible but only to the extent of the original amount of mortgage debt before the refinancing.
Question: What debts are excluded under the act?
Answer: Debts forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for this new tax provision. In some cases, some kind of tax relief based on insolvency may be available. Please see Form 982 for details.
Question: What should homeowners do to avail of this tax exemption?
Answer: Taxpayers who intend to liquidate debts where the loan amount is significantly higher than the value of the property should apply for a loan modification or short sales before the act expires on December 2012.
Note: This is not a legal advice. You need to talk to an attorney about your specific case. Our office offer FREEinitial consultation on Loan Modification and Short Sales only.
* * *
Crispin Caday Lozano is an active member of the State Bar of California and he specializes in immigration law. His offices are located at 17057 Bellflower Blvd. Suite 205, Bellflower, CA 90706 and 1290 B Street, Suite 205, Hayward, California 94541 and at 777 N. First St., Suite 333, San Jose, CA 95112. You can contact him at telephone (562) 461-1355 and (510) 538-7188.
( Published November 27, 2009 in Asian Journal Northern California p. B5 )
| < Prev | Next > |
|---|
