Mortgage Forgiveness Debt Relief Act of 2007
President 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.