In response to the subprime mortgage crisis, the Mortgage Forgiveness Debt Relief Act of 2007, P.L. 110-142 (MRA), was signed into law on December 20, 2007. This act excludes from income the discharge of qualified principal residence indebtedness. Its discharge provisions are temporary and apply to discharges during 2007, 2008, and 2009.
When to claim tax relief from mortgage debt forgiveness?
If you are a homeowner whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income. Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.
Is there going to be mortgage debt relief in 2018?
Although Congress breathed life back into it as part of the 652-page Bipartisan Budget Act of 2018, the resuscitation is even more temporary than previous lifelines. The retroactive extension gave a reprieve to principal residence indebtedness discharged, 2018, and for written discharge agreements executed, before Jan. 1, 2018.
When did Congress allow mortgage debt to be forgiven?
This vestige of the Great Recession, passed in late 2007 during the George W. Bush administration, then extended by Congress under both presidents Obama and Trump, allowed — under limited circumstances — debt forgiven by mortgage lenders to be excluded from the borrower’s tax return.
What are the rules for mortgage debt forgiveness?
Under the act, taxpayers were able to exclude up to $2 million in debt forgiveness, whether through foreclosure, short sale, or some sort of mortgage modification. The key stipulation: The waiver had to be made on the taxpayer’s qualified principal residence. Second homes and vacation homes did not qualify. All good, right?
What are the tax benefits of the Mortgage Forgiveness Act?
The major tax benefit the MRA provides is income exclusion for forgiveness of principal mortgage indebtedness. The maximum exclusion is $2 million ($1 million for married taxpayers filing separately) and reduces the home’s basis. This is beneficial to solvent taxpayers affected by the subprime mortgage crisis.
When does qualified principal residence mortgage forgiveness start?
The act excludes qualified principal residence mortgage forgiveness from income as long as the discharge occurs on or after January 1, 2007, and before January 1, 2010 (Sec. 108 (a) (1) (E)). Taxpayers’ qualified principal residence is one they have owned, and lived in, for two of the five prior years (Sec.
