Are you Qualified for Cancellation of Debt Forgiveness by the end of this Year
Here are 10 things the Internal Revenue Service says you should know about mortgage debt forgiveness: 1. Normally, when a lender forgives a debt -- that is, relieves the borrower from having to pay it back -- the amount of the debt is taxable income to the borrower. Thus, a homeowner who had $100,000 in mortgage debt forgiven through a short sale would have to pay income tax on that $100,000, as an example.Fortunately, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude from your taxable income up to $2 million of debt forgiven on your principal residence from 2007 through 2012. This means you don't have to pay income tax on the forgiven debt. 2. The limit is $1 million for a married person filing a separate return. 3. You may exclude from your taxable income debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure. 4. To qualify, the debt must have been used to buy, build or substantially improve your p...