Friday, February 22, 2008

IRS Changes Rules on Personal Residence Debt Relief

If you lost your home due to foreclosure or had during 2007, there are new IRS rules that may apply.

According to the Internal Revenue Service (IRS), "The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief."

Further, the IRS explains "This provision applies to debt forgiven in 2007, 2008 or 2009. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition."

To read more from the IRS: IRS questions and answers on Home Foreclosure and Debt Cancellation

Note: We advise you to check with your tax advisor, financial advisor or other appropriate professional(s) to see how this may affect you and your personal situation. We are not qualified to, or to we mean to, give tax advice.

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