During the economic downturn that occurred in the United States during the years 2007 to 2010, several individuals lost their jobs and found themselves in a complicated financial situation. In particular, many people who were no longer able to pay for their mortgage had to leave their house or their apartment. Others who were actually forced to short sell found that although they had managed to remove their mortgage liabilities, they still had to deal with the large amounts of money due to the IRS on omitted and canceled debt. The passing of the Mortgage Forgiveness Debt Relief Act allowed these people to get rid of their tax bills. In this article, we will discuss about the context that paved the way for the introduction and the passing of the Mortgage Debt Relief Act.
When an individual borrows some money from a creditor or a financial institution, and that the creditor or the financial institution later removes or forgives the debt, as it happened with the many houses and apartments that went through foreclosures, short selling or were returned to lenders or other financial institutions in deed in lieu of foreclosure proceedings, the Internal Revenue Service accounts the removed or forgiven debt as an income that is subject to tax. Even though this is never true for all cases of debt removal or forgiveness, it happens at a high frequency. This measure was seen as unfair because it basically left taxpayers who had already lost everything and were broke with another financial problem to deal with the federal government that they could not afford to settle.
The solution to this problem came from the passing of the Debt Relief Act of 2007 that enabled taxpayers to exclude forgiven or canceled debts from their tax returns as an income that would be subject to federal taxes. The main requirement is that the debt in question be contracted from a process of foreclosure of a primary residence, deed in lieu or a short sale. Any debt that is offset via the restructuring of a mortgage is also eligible for relief.
The Mortgage Debt Relief Act was mainly designed to prevent the economy of the United States from spiraling further out of control. Consequently, a certain number of limitations were included in the legislation. These restrictions concerned the individuals who could be eligible for the benefits offered by the Act. Particularly, the legislation was effective on any debt related to mortgage that was canceled or forgiven during the time period going from 2007 to 2010. Under the Mortgage Debt Relief Act, consumers were able to avert paying taxes on up to two million dollars of canceled or forgiven debts from main residences, or on up to one million dollars if they were married and filed their tax returns separately. This enabled that individuals who were affluent and thus did not need to benefit from the Act not have their debts forgiven or canceled.
Are only eligible for tax relief under the Mortgage Debt Relief Act the individuals who lost their houses or their apartments, then went though financial hardship and found it tough to see their real estate properties because of the reducing value of their house or their apartment. Even though the Internal Revenue Service shall not tax the persons who are eligible for protection under the Mortgage Debt Relief Act for a debt that was either removed or forgiven, people are still required to file a report when one of their debts gets canceled or forgiven. In order to file such a report, an individual may employ form 982, which can be found on the Internet website of the IRS, and send it along with their tax return.
When an individual borrows some money from a creditor or a financial institution, and that the creditor or the financial institution later removes or forgives the debt, as it happened with the many houses and apartments that went through foreclosures, short selling or were returned to lenders or other financial institutions in deed in lieu of foreclosure proceedings, the Internal Revenue Service accounts the removed or forgiven debt as an income that is subject to tax. Even though this is never true for all cases of debt removal or forgiveness, it happens at a high frequency. This measure was seen as unfair because it basically left taxpayers who had already lost everything and were broke with another financial problem to deal with the federal government that they could not afford to settle.
The solution to this problem came from the passing of the Debt Relief Act of 2007 that enabled taxpayers to exclude forgiven or canceled debts from their tax returns as an income that would be subject to federal taxes. The main requirement is that the debt in question be contracted from a process of foreclosure of a primary residence, deed in lieu or a short sale. Any debt that is offset via the restructuring of a mortgage is also eligible for relief.
The Mortgage Debt Relief Act was mainly designed to prevent the economy of the United States from spiraling further out of control. Consequently, a certain number of limitations were included in the legislation. These restrictions concerned the individuals who could be eligible for the benefits offered by the Act. Particularly, the legislation was effective on any debt related to mortgage that was canceled or forgiven during the time period going from 2007 to 2010. Under the Mortgage Debt Relief Act, consumers were able to avert paying taxes on up to two million dollars of canceled or forgiven debts from main residences, or on up to one million dollars if they were married and filed their tax returns separately. This enabled that individuals who were affluent and thus did not need to benefit from the Act not have their debts forgiven or canceled.
Are only eligible for tax relief under the Mortgage Debt Relief Act the individuals who lost their houses or their apartments, then went though financial hardship and found it tough to see their real estate properties because of the reducing value of their house or their apartment. Even though the Internal Revenue Service shall not tax the persons who are eligible for protection under the Mortgage Debt Relief Act for a debt that was either removed or forgiven, people are still required to file a report when one of their debts gets canceled or forgiven. In order to file such a report, an individual may employ form 982, which can be found on the Internet website of the IRS, and send it along with their tax return.