After the United States housing market bubble burst, many borrowers had their homes foreclosed upon because they were unable to keep making mortgage payments on a regular basis. Many of these borrowers felt relief with the Mortgage Debt Relief Act of 2007, which gave relief to borrowers. The Mortgage Debt Relief Act expired in 2013, but debt forgiven before 2013 could still potentially be eligible.
What is Debt Forgiveness?
To make a long story short, debt forgiveness is when some or all of a debtor’s outstanding debt is written off. This might happen because a lender wants to minimize the loss after a default. When this unpaid debt is cancelled, this is considered borrower income and is taxable, unless there are any exemptions such as the Mortgage Debt Relief Act of 2007.
What Do I Need To Know About the Mortgage Debt Relief Act?
First of all, you need to know that your tax credit can be claimed with the IRS Form 982. You also need to know that you can only qualify if you have restructured your mortgage or gone through a foreclosure. Talk to your lender about specific tax exemption rules and qualifications. To qualify for the Mortgage Debt Relief Act, you must have had debt cancelled between the years of 2007 and 2013.
If you do have any cancelled debt that took place in between 2007 and 2013, talk to your lender and/or tax professional for sound advice regarding how to make the best financial decision. If you think you're at risk for default or foreclosure in 2014, also have a conversation with your lender to see what he or she can do for you to stop that possibility.