Mortgage Forgiveness Debt Relief Act due to expire.

The Mortgage Debt Relief Act of 2007 is due to expire at the end of 2012. AAR (Arizona Association of Realtors) contacted a NAR (National Association of Realtors) legislative liaison regarding whether there is any movement to extend the Act. The NAR liaison indicated that it has been the practice of Congress for many years to extend expiring provisions in the year of their expiration or even the following year. NAR will be pushing hard, starting January 2012, to get this provision extended. For more information on the Act, see: http://www.irs.gov/individuals/article/0,,id=179414,00.html 

If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable, contact your CPA.

The Mortgage 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, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not 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.