Ordinarily any housing debt forgiven by a lender or servicer (short sale, principal reduction, short refinances, deed-in-lieu of foreclosure, etc.) is considered taxable income by the I.R.S. and must be included (added) to a taxpayer’s gross income when calculating their income tax.
In 2007, the Mortgage Forgiveness Debt Relief Act allowed homeowners who received debt forgiveness to not have to pay taxes on the amount forgiven in most circumstances. The law was then extended in 2009 for an additional three years (through 12/2012).
The ‘fiscal cliff’ deal that was recently signed by President Obama extends the exception for home mortgage debt forgiveness for an additional year covering debts discharged through the end of 2013.
Minnesota homeowners need to know that there are MANY stipulations in the legislation. Most importantly, for homeowners to qualify for debt forgiveness, their debt must have been used to “buy, build, or substantially improve” their primary residence. This stipulation is especially important for buyers whose debt has been forgiven on a refinanced or second mortgage.
You can view a copy of our newly-updated fact sheet here.
Consult a qualified tax professional if you have additional questions about the Mortgage Forgiveness Debt Relief Act or the most recent extension.
Dozens of other helpful facts sheets about foreclosure and foreclosure prevention are available to the public and can be freely downloaded from the Center's website, here.
If you're struggling with mortgage payments... you're not alone. Thousands of others are also struggling. More importantly, Minnesota has a statewide network of non-profit organizations that can help YOU put a plan in place to avoid foreclosure. Last year, more than half of the people who sought out our services were able to avoid foreclosure. Don't delay, contact us today.