Homeowners whose mortgage debt was partly or entirely forgiven during 2007 may be able to claim special tax relief by filing a newly-revised form and attaching it to their 2007 federal income tax return, according to the Internal Revenue Service.
 
Normally, debt forgiveness results in taxable income.  But under the Mortgage Forgiveness Debt Relief Act of 2007, enacted December 20, 2007 taxpayers may exclude debt forgiven on their principal residence if the balance of the loan was $2 million dollars or less. The limit is $1 million for a married person filing a separate return.
 
The new law contains important provisions for struggling homeowners and people with mortgage problems should take full advantage of the valuable tax relief available.
 
The debt must have been used to buy, build or substantially improve the taxpayer's principle residence and must have been secured by that residence.  Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.
 
Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lender.  By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.
 
Note: Legislation enacted in October 2008 extended this relief through 2012.  Therefore, this relief now applies to debt forgiven in calendar years 2007 through 2012.
 
 If Amaral & Associates, P.C. can ever assist you with your real estate legal issues please let us know by contacting our office in Boston at (617) 742-2020 at 65 Atlantic Avenue, Boston, MA 02110 or in Winthrop at (617) 539-1010 at 246 Revere Street, Winthrop, MA 02152 and at edamaral@amarallaw.com or you can visit our website at www.amarallaw.com.