With the economic downturn, many Americans have struggled to pay their debts. Banks and lenders are often willing to work with struggling taxpayers by allowing work out programs or other debt relief. The Mortgage Forgiveness and Debt Relief Act of 2007 generally allows taxpayers to exclude income from debt relief on their principal residence. In the case of mortgage restructuring or foreclosure, the amount due to the bank is reduced or effectively forgiven. While that amount would be considered income, in most instances those circumstances allow the taxpayer to qualify for the relief under the Act.
This provision applies to debt forgiveness during calendar years 2007 through 2012. To read more about exclusions and qualifications, vist the IRS website.
HLB Gross Collins, P.C. is committed to helping clients minimize the tax bite by taking advantage of every possible deduction or opportunity for tax relief. Be sure to include any information regarding debt forgiveness incurred in 2009 when you are gathering your information for your tax return.