Some Important Things You Should Know About The Mortgage Forgiveness Debt Relief Act
As you probably know, the Mortgage Forgiveness Debt Relief Act is a law that provides relief to home owners who would have to pay taxes on their forgiven debts after facing property foreclosure. This law was presented on September 25, 2007, and became a part of US legislature on December 20, 2007. If you are facing the possibility of home foreclosure then it is crucial that you learn about this law and figure out how to make the most of it. This article will give you a brief overview of this law along with some tips and guidelines.
According to the regulations laid out by the Internal Revenue Service (IRS), mortgage debt that's forgiven or wiped off is equivalent to earnings and is therefore taxable. Same is the case with property foreclosures and loan modifications in which the original loan is decreased. However under the Mortgage Forgiveness Debt Relief Act a homeowner doesn't have to pay this tax.
According to the tax code, mortgage debts can be put into two classes: acquisition debt and home equity debt. If the loan amount is used to purchase, build up, or considerably improve a residence then it's known as acquisition debt. Any other loans fall into the latter category. It is important to know which class your home loan belongs to as it may have an impact on your taxes. The Mortgage Forgiveness Debt Relief Act dictates that acquisition debt may be excluded from taxes but equity debt can not.
Another important thing that you need to remember is that you can only qualify for an exemption if the house that you purchased or improved with the loan amount is your primary dwelling. To put it differently even if you have more than one properties then you can use this law only once. Second homes, vacation homes, investment properties, or rental units don't qualify under this exclusion.
In the beginning the act was applicable to debts cleared in year '07 through 09. However at the end of 09 our lawmakers voted to prolong the date to 2012. The act expired on December 31, 2012. Again Congress prolonged the relief through the end of 2013, offering necessary assistance to thousands of fiscally distressed property owners with underwater mortgages. If you have been thinking about applying for a loan modification or foreclosure then this is the time to take some action. At the end of 2013 the act will expire again and you will have to pay a substantial amount as tax.
Hopefully you now know all about Mortgage Forgiveness Debt Relief Act. In order to reap the benefits of this rule make sure you follow the recommendations given in the above paragraphs.
According to the regulations laid out by the Internal Revenue Service (IRS), mortgage debt that's forgiven or wiped off is equivalent to earnings and is therefore taxable. Same is the case with property foreclosures and loan modifications in which the original loan is decreased. However under the Mortgage Forgiveness Debt Relief Act a homeowner doesn't have to pay this tax.
According to the tax code, mortgage debts can be put into two classes: acquisition debt and home equity debt. If the loan amount is used to purchase, build up, or considerably improve a residence then it's known as acquisition debt. Any other loans fall into the latter category. It is important to know which class your home loan belongs to as it may have an impact on your taxes. The Mortgage Forgiveness Debt Relief Act dictates that acquisition debt may be excluded from taxes but equity debt can not.
Another important thing that you need to remember is that you can only qualify for an exemption if the house that you purchased or improved with the loan amount is your primary dwelling. To put it differently even if you have more than one properties then you can use this law only once. Second homes, vacation homes, investment properties, or rental units don't qualify under this exclusion.
In the beginning the act was applicable to debts cleared in year '07 through 09. However at the end of 09 our lawmakers voted to prolong the date to 2012. The act expired on December 31, 2012. Again Congress prolonged the relief through the end of 2013, offering necessary assistance to thousands of fiscally distressed property owners with underwater mortgages. If you have been thinking about applying for a loan modification or foreclosure then this is the time to take some action. At the end of 2013 the act will expire again and you will have to pay a substantial amount as tax.
Hopefully you now know all about Mortgage Forgiveness Debt Relief Act. In order to reap the benefits of this rule make sure you follow the recommendations given in the above paragraphs.
