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Newsletter - Summer 2008
Mortgage Relief for Certain Taxpayers
Raul Rios, Staff Accountant, Tax and Business Services |
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The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 to afford taxpayers some relief from the subprime mortgage crisis. The act generally allows for realized income to be excluded from gross income as a result of an adjustment made by a lender to the terms of the mortgage or foreclosure on a principal residence only. In general, debt that is forgiven by a lender must be included as income on a taxpayer's individual personal income tax return. The act allows an individual taxpayer to exclude forgiven debt on their principal residence from the period January 1, 2007 to December 31, 2009. The act applies only to forgiven debt used to buy, build, refinance (amount equal to old mortgage) or substantially improve their principal residence only, which excludes second and vacation homes. There is a limit of $2 million dollars ($1 million if married filing separately) for the principal balance of the loan that was forgiven. Taxpayers who qualify for the mortgage relief will receive a Form 1099-C from their lender stating the amount of debt relief for use in preparing their tax return.
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