Mortgage Forgiveness Debt Relief Act of 2007 information
The Mortgage Forgiveness Debt Relief Act of 2007 was introduced in the United States Congress on September 25, 2007, and signed into law by President George W. Bush on December 20, 2007. This act offers relief to homeowners who would have owed taxes on forgiven mortgage debt after facing foreclosure. The act extends such relief for three years, applying to debts discharged in calendar years 2007 through 2009. With the Emergency Economic Stabilization Act of 2008, this tax relief was extended another three years, covering debts discharged through calendar year 2012. The relief was further extended until January 1, 2014, at Section 202 of the American Taxpayer Relief Act of 2012.[1]
This tax relief has been renewed each year since. The Bipartisan Budget Act of 2018 renewed it for all of the tax year 2017 and offered a wide range of individual and business tax benefits that had expired at the end of 2016, including the "exclusion from gross income of discharge of qualified principal residence indebtedness (often, foreclosure-related debt forgiveness), claimed on Form 982."[2]
In the eyes of the Internal Revenue Service (IRS), housing debt that is forgiven or written off is the same as income. If the law expires, forgiven mortgage debt will be taxable. The same applies to foreclosures and to loan modifications in which principal is reduced.
Once the lender writes off the debt, it will report the amount to the IRS. Homeowners should expect to receive Form 1099-C, Cancellation of Debt showing the cancelled debt amount.
All taxpayers, including those who qualify for the exemption, will get the form in the mail if they had debt cancelled. Those who qualify for the exclusion will be required to file Form 982 with their taxes for that year. The exemption applies only to debt related to a primary residence. Mortgages on vacation and rental properties are not exempt under the act. Homeowners who did cash out refinancing and used the money for any other purpose than fixing up their house could still be required to report the forgiven debt as income.
However, after the signing of the Mortgage Forgiveness Act of 2007, amendments have been made to remove such tax liability and allow the borrower and lender to work freely together to find a common solution that is beneficial to both parties. This protection is limited to primary residences—rental properties are ineligible for relief—so consultation with a tax advisor is necessary to ensure that a borrower qualifies.[3] The amount of excluded forgiven mortgage debt is limited to $2 million per year.
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December 20, 2007 --- MortgageForgivenessDebtReliefActof2007, Pub.L. 110-142 December 31, 2007 --- OPEN Government Actof2007, Pub.L. 110-175 January...
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