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Originally
HR3648, signed into law on December 20th 2007. The law eliminates
the phantom
tax related to forgiveness of debt related to foreclosure, short sale
and loan modification (principal reduction). Law is applicable to
forgiveness of debt realized between January 1st 2007 to January 1st
2012. Prior to passage any debt forgiven was "cancelled"
and was required to be
claimed as
1099 income. Below are some of the guidelines for the law:
-
Debt
must have been debt incurred to acquire a principal residence.
-
Cancelled
debt up to $2,000,000 is eligible.
-
Sets
forth rules for determining the allowable amount of the exclusion
for
taxpayers with non-qualifying indebtedness and taxpayers who are
insolvent.
Debt
from a second (non acquisition) mortgage or HELOC is not eligible
(unless
used to improve basis of property).
Debt
from a cash out refinance is not eligible (unless used to improve
basis of
property)
Cancelled
debt from investment properties and second homes is not
eligible.
DISCLOSURE
- We
are not income tax professionals. You're advised to review the Mortgage
Forgiveness Debt Relief Act of 2007 at the IRS website, click
here. You're also advised to consult with an income tax
professional to discuss how the law applies to your individual scenario.
If
you'd like to discuss your scenario with Kevin Nakano, CDPE, please
complete the online
form and Kevin
Nakano will follow up with you within one business day.
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