Before if you owed a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.
I’ve been asked a lot lately about the Mortgage Forgiveness Debt Relief Act which is due to expire December 31, 2013.
What happen if you get a principle reduction of 150,000 will that amount be added to my regularly taxed income in 2014?
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
Form 1099-C, “Cancellation of Debt,” from the lender that forgave the debt. Common examples of when you might receive a Form 1099-C include repossession, foreclosure, return of property to a lender, abandonment of property, or the modification of a loan on your principal residence.
This provision applies to debt forgiven in calendar years 2007 through 2013.
President Obama released his budget proposal for this calendar year on February 13th, 2012. His proposal called for the Mortgage Forgiveness Debt Relief Act to be extended and here’s how he explained the reasons why:
”Although there have been improvement in the residential real estate market, there is still an elevated number of cases in which homeowners may have discharge of indebtedness income with respect to their home mortgage loans. And since the ways to avoid foreclosure often involve some forgiveness of debt, it was necessary for the expiration of this Act to be extended.”
Wealth Management Financial Advisors in Bixby Knolls, Long Beach, provide tax preparation services that has help individuals and businesses handle their returns and tax issues. We also assist taxpayers resolve their income tax issues with any tax collection agency: IRS, Franchise Tax Board, State Board of Equalization and EDD. We plan and implement income tax strategies to help our client maximize their deductions and minimize their tax liabilities without compromising our client’s integrity.