Mortgage Debt Forgiveness by theyne


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									 IRS Tax Tips                                                                     March 12, 2013

Useful Links:                Issue Number: IRS Tax Tip 2013-31 Home                 Inside This Issue
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                                  Important Facts about Mortgage Debt
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                             If your lender cancelled or forgave your mortgage debt, you generally
What's Hot                   have to pay tax on that amount. But there are exceptions to this rule for
                             some homeowners who had mortgage debt forgiven in 2012.
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                             Here are 10 key facts from the IRS about mortgage debt forgiveness:
IRS - The Basics
                             1. Cancelled debt normally results in taxable income. However, you
IRS Guidance                 may be able to exclude the cancelled debt from your income if the debt
                             was a mortgage on your main home.
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                             2. To qualify, you must have used the debt to buy, build or
                             substantially improve your principal residence. The residence must
Problem Alerts               also secure the mortgage.

Around The Nation            3. The maximum qualified debt that you can exclude under this
                             exception is $2 million. The limit is $1 million for a married person
e-News Subscriptions         who files a separate tax return.

                             4. You may be able to exclude from income the amount of mortgage
                             debt reduced through mortgage restructuring. You may also be able to
The Newsroom Topics          exclude mortgage debt cancelled in a foreclosure.

Tax Tips 2013                5. You may also qualify for the exclusion on a refinanced mortgage.
                             This applies only if you used proceeds from the refinancing to buy,
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                             build or substantially improve your main home. The exclusion is
                             limited to the amount of the old mortgage principal just before the
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                             6. Proceeds of refinanced mortgage debt used for other purposes do not
Disaster Relief              qualify for the exclusion. For example, debt used to pay off credit card
Scams / Consumer Alerts       debt does not qualify.
Tax Shelters                  7. If you qualify, report the excluded debt on Form 982, Reduction of
                              Tax Attributes Due to Discharge of Indebtedness. Submit the
                              completed form with your federal income tax return.
IRS Resources                 8. Other types of cancelled debt do not qualify for this special
                              exclusion. This includes debt cancelled on second homes, rental and
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                              business property, credit cards or car loans. In some cases, other tax
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                              relief provisions may apply, such as debts discharged in certain
                              bankruptcy proceedings. Form 982 provides more details about these
Filing Options                provisions.

Forms & Pubs                  9. If your lender reduced or cancelled at least $600 of your mortgage
                              debt, they normally send you a statement in January of the next year.
Frequently Asked Questions    Form 1099-C, Cancellation of Debt, shows the amount of cancelled
                              debt and the fair market value of any foreclosed property.
                              10. Check your Form 1099-C for the cancelled debt amount shown in
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                              Box 2, and the value of your home shown in Box 7. Notify the lender
                              immediately of any incorrect information so they can correct the form.
Where to File

                              Use the Interactive Tax Assistant tool on to check if your
                              cancelled debt is taxable. Also, see Publication 4681, Canceled Debts,
                              Foreclosures, Repossessions and Abandonments. IRS forms and
                              publications are available online at or by calling 800-TAX-
                              FORM (800-829-3676).

                              Additional IRS Resources:

                                     Interactive Tax Assistant tool
                                     Publication 4681, Canceled Debts, Foreclosures, Repossessions
                                      and Abandonments
                                     Mortgage Forgiveness Debt Relief Act and Debt Cancellation
                                     Form 982, Reduction of Tax Attributes Due to Discharge of

                              IRS YouTube Videos:

                                     Mortgage Debt Forgiveness - English | Spanish | ASL

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