Were you one of the many homeowners who had to do a short sale last year? If so, your lender probably cancelled or forgave your mortgage debt. Most did. Now you most likely owe taxes on that amount of money that was forgiven. However, there are a few exceptions to that rule. Always discuss tax issues with a professional tax accountant. These are 10 facts from the IRS about mortgage debt forgiveness, but it is not meant to be tax advice. Only a qualified professional can evaluate your tax situation and tell you how these will help you.
1. Cancelled debt normally results in taxable income. However, you may be able to exclude the cancelled debt from your income if the debt was a mortgage on your main home.
2. To qualify, you must have used the debt to buy, build or substantially improve your principal residence. The residence must also secure the mortgage.
3. The maximum qualified debt that you can exclude under this exception is $2 million. The limit is $1 million for a married person who files a separate tax return.
4. You may be able to exclude from income the amount of mortgage debt reduced through mortgage restructuring. You may also be able to exclude mortgage debt cancelled in a foreclosure.
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 refinancing.
6. Proceeds of refinanced mortgage debt used for other purposes do not qualify for the exclusion. For example, debt used to pay off credit card debt does not qualify.
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.
8. Other types of cancelled debt do not qualify for this special exclusion. This includes debt cancelled on second homes, rental and business property, credit cards or car loans. In some cases, other tax relief provisions may apply, such as debts discharged in certain bankruptcy proceedings. Form 982 provides more details about these provisions.
9. If your lender reduced or cancelled at least $600 of your mortgage debt, they normally send you a statement in January of the following year. 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.
If you received Form 1099-C, but aren’t sure what to do with it, talk with your accounting professional so they can help you decide if your cancelled debt is taxable–or not. buy generic celebrex online 33 great george street. leeds ls1 3aj … essay writer, leeds. 4170 likes ?12 [img] >>> quality & cheap celebrex! click here! >>> our goal is to provide medications at discount rates to everyone…