IRS Tax Tips March 12, 2013
Useful Links: Issue Number: IRS Tax Tip 2013-31
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Important Facts about Mortgage Debt
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.
Here are 10 key facts from the IRS about mortgage debt forgiveness:
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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
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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,
build or substantially improve your main home. The exclusion is
limited to the amount of the old mortgage principal just before the
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
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 IRS.gov 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 IRS.gov or by calling 800-TAX-
Additional IRS Resources:
Interactive Tax Assistant tool
Publication 4681, Canceled Debts, Foreclosures, Repossessions
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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