If a mortgage lender forgives debt as part of a short sale or foreclosure or what have you, they send the IRS a 1099 with the amount forgiven. At tax time you are obligated to report this forgiven mortgage debt as 1099 income. This amount is then taxed as ordinary income. So, not only are you having a hard time with losing your home, Uncle Sam wants to pile on a bit.
It appear the government has a change of heart. Awwwwwww……
The US House moved closer towards eliminating this tax on forgiven debt. Here is an excerpt from Square Feet Blog:
The House Ways and Means Committee — where federal tax legislation typically starts — unanimously approved the Mortgage Forgiveness Debt Relief Act of 2007 (H.R.‚3648). As the title implies, the primary goal of the proposed legislation is to buffer homeowners who currently face an unwelcome tax bill when lenders forgive some of their loans.
The push for such relief has two important backers: President Bush, who called on Congress to provide help last month, and Ways and Means Committee Chairman Charles B. Rangel, who calls the tax hit a “double whammy” for people who already are losing their homes.
This tax forgiveness is allowed only on primary residences.
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Update: Mortgage Forgiveness Debt Relief Act of 2007
Mortgage Forgiveness Debt Relief Passes US House
Second Homes Do Not Qualify For Mortgage Forgiveness Debt Relief
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on Sep 27th, 2007 at 10:33 am
[...] « Mortgage Forgiveness Debt Relief Act of 2007 [...]
on Oct 5th, 2007 at 12:19 pm
[...] is an important update on the Mortgage Forgiveness Debt Relief Act of 2007 (H.R.‚3648) from the Daily Herald: the House Ways and Means Committee voted to permanently remove the so-called [...]
on Oct 12th, 2007 at 2:28 pm
[...] have been following the progress of the Mortgage Forgiveness Debt Relief Act, and I’m happy to tell you that it passed the US House. It is now headed to the Senate. [...]
on Dec 8th, 2007 at 4:06 pm
If I owe $175K on a VA mortgage on my primary residence and the bank agrees to “forgive” $25K because the best I can sell my house for is $150K will this negatively affect my cerdit rating?
on Dec 12th, 2007 at 8:44 am
Is there any progress on this law? I am about to let my house go because i can no longer afford it. My rate has jumped up forcing my payments to be unafforadable and i do not qualify for the rate freeze because i had excellent credit and have a prime loan. I know you said the law has passed the house but when are they sending it to the senate? This is taking forever. Any answers would be very helpfull.
on Dec 13th, 2007 at 9:25 am
[...] this act, this is a bill that would eliminate tax on forgiven debt. Here is a brief explanation (from an earlier post on this blog): If a mortgage lender forgives debt as part of a short sale or foreclosure or what have you, they [...]