Ten Facts About Mortgage Debt Forgiveness
- 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.
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