Ten Facts About Mortgage Debt Forgiveness

Syndicated real estate columnist Kenneth R. Harney writes:

• With the Obama administration and private lenders now actively considering mortgage-principal-reduction programs to help financially distressed homeowners, the Internal Revenue Service has issued a new advisory to taxpayers who receive - or seek to receive - such assistance if it’s offered.

• The IRS gets involved in mortgage principal write-downs because the federal tax code generally treats any forgiveness of debt by a creditor in excess of $600 as ordinary taxable income to the recipient. However, under legislation that took effect in 2007, certain home mortgage debt cancellations - such as through loan modifications, short sales or foreclosures - may be exempted from tax treatment as income.

For more, see IRS issues loan write-down rules.

See also:

• IRS Tax Tip 2010-44: Ten Facts about Mortgage Debt Forgiveness,
• Avoiding The Tax Man For Owners Of Homes Sold In Foreclosure & Short Sale Situations.