So the clock struck 12, Surprise ! You didn’t turn into
a pumpkin of financial tax distress. You’ve been saved
my friends.
Extension of the Mortgage Debt Relief and Debt
Cancellation Act of 2007 was extended as part of the
fiscal deal taking place early this month of January. The
extension will be through December 2013. The act which
came about in the last remaining moments of George
Bush’s presidency states that debt discharged as a
result of a foreclosure, or short sale, or loan
modification is not taxable. The discharged amount
being no more than $2 million and this must be on your
primary residense else this act does not apply.
Normally any discharged debts such as from mortgages or credit
cards or from other loans is considered income and is
taxable. This has saved home owners from the stress of
having to pay huge tax amounts as a result.
The process of forgiveness of discharged real estate debt
involves the bank settling and closing the case on
your short sale/forclosure , or loan mod. They will
then send a form 1099-C to you stating the difference
amount between the original loan value and the final
settled anount. The amount stated must be place on IRS
form 982 and sent along with your tax forms. If any
discrepancy you may contact the bank to query it and
perhaps modify the amount.
The act also applies to government backed student
loans as well as to credit card debt. Student loans in
which required to work for a certain time in the
profession do not require you to pay tax on the
discharged student loan amount if defaulted on. On
credit cards which have been defaulted upon, a person
will not be required to pay tax on the discharged
amount if the person has declared chapter 11
bankruptcy or proven insolvency prior to discharge.
Insolvency in accounting terms is where your total
debts exceed the total fair market value of all of
your assets.
Read further details about the Act from the IRS’s site
at
iveness-Debt-Relief-Act-and-Debt-Cancellation-'
target=_blank > Read more
Writer: Dexter Coelho has been an investor of real
estate for several years and has extensive experience
in the rental real estate market. For like topics and
more, visit
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