Tax Relief and Canceled Debt
One of the big issues right now revolves around foreclosures, and efforts to stop foreclosures. Various programs, from Hope Now and Project Lifeline to the recently passed housing relief bill are designed to help stall the flood of foreclosures and get distressed homeowners out of trouble. (Whether or not they are working is a completely different discussion.)
Part of the efforts to help homeowners include some mortgage lenders offering some measure of canceled debt through partial loan forgiveness or some other means. And, unfortunately, that sort of canceled debt is considered by tax laws to be income. The good news, reports Chris Bibey at the Tax Center, is the following:
If you find yourself in this position, you should be aware of the options for excluding this “extra income” from your tax return. There are three exclusions: one for bankruptcy, one for a case of insolvency, and one for mortgage debt. The mortgage exclusion is most commonly used, and for this reason should be understood by anybody in this position.
A few months ago, Congress passed a tax relief bill aimed at helping homeowners who found themselves in a position where canceled debt may be a reality. The bill prevents these folks from finding themselves in even more trouble as they struggle to pay income tax on money that they never actually got to use as income.
Something to consider, though: The provision expires in 2009. Also, there are some restrictions as to the type of canceled debt that applies. Consumer debt (including cash home equity loans) is not included in the tax relief bill. It is a good idea to consult a knowledgeable tax attorney or accountant so that you know exactly whether or not you qualify.
Tags: home equity loans, home equity, home mortgage loan, mortgage lenders,
tax relief, mortgage forgiveness, tax laws
