Mortgage Forgiveness Debt Relief Act of 2007

Mortgage Forgiveness Debt Relief Act of 2007

Debt ForgivenessPresident Bush recently signed into law a new measure giving tax breaks to homeowners who have mortgage debt forgiven. Under preexisting law, the debt forgiven by a lender, such as for short sales and refinances, was generally taxable to the borrower as debt discharge income. With the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer does not have to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence.

This tax break applies to debts discharged from January 1, 2007 to December 31, 2009. Qualified principal residence indebtedness is debt incurred in acquiring, constructing, or substantially improving the residence (up to $2 million for refinances).

For purposes of calculating capital gains, any debts discharged excluded from income under the new law must be subtracted from the basis of the taxpayer’s principal residence (but not below zero). However, taxpayers may generally exclude from capital gains income up to $250,000 (or $500,000 for married couples filing jointly) for properties owned and used as their principal residence for at least two of the last five years.

Click here for the full copy of the Mortgage Forgiveness Debt Relief Act of 2007 .

The preceding is for informational purposes, and is not to be considered tax advice. The SV Home Team, specializing in real estate sales in Santa Clara County, and specifically in Sunnyvale, California, is simply trying to disseminate information we hear that might be beneficial for the public at large. We are not accountants, and we always advise verifying this and any information which can have tax ramifications with your tax advisor.

2 thoughts on “Mortgage Forgiveness Debt Relief Act of 2007

  1. I’ve been interested in taxes for longer then I care to acknowledge, both on the private side (all my employed life!!) and from a legal standpoint since satisfying the bar and following tax law. I’ve rendered a lot of advice and rectified a lot of wrongs, and I must say that what you’ve posted makes perfect sense. Please carry on the good work – the more people know the better they’ll be armed to handle with the tax man, and that’s what it’s all about.

  2. Hi there, I just found this blog whilst hunting around Google as I am researching some info on debt relief!. I think it’s a good blog so I’ve bookmarked your site and I intend to revisit you tomorrow to have a more indepth read when I have more time.

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