| The passage of this Act will go a long way in aiding | | | | such indebtedness. Reduces the basis of a principal |
| financially strapped homeowners in the foreclosure | | | | residence by the amount of discharged indebtedness |
| process. Under pre-existing law, the debt forgiven by a | | | | excluded from gross income. Disallows an exclusion |
| lender in a foreclosure or Short Sale usually resulted in | | | | for a discharge of indebtedness on account of |
| the borrower receiving a 1099 income tax form for the | | | | services performed for the lender or any other factor |
| amount not recovered. | | | | not directly related to a decline in the value of the |
| This debt forgiveness had to be reported as taxable | | | | residence or to the financial condition of the taxpayer. |
| income to the borrower. With the passage of | | | | Sets forth rules for determining the allowable amount |
| H.R.3648, the Mortgage Forgiveness Debt Relief Act, a | | | | of the exclusion for taxpayers with non-qualifying |
| taxpayer is no longer required to pay federal income | | | | indebtedness and taxpayers who are insolvent. Seek |
| tax on debt forgiven for a loan secured by a qualified | | | | the advice of your accountant for clarification. |
| principal residence. President Bush signed the Debt | | | | With the recent increase of FHA loan limits from |
| Relief Act on December 20, 2007 which amends the | | | | $362,790 to more than double to $729,750 many |
| Internal Revenue Code to exclude from gross income | | | | homeowners can refinance with much lower, more |
| amounts attributable to a discharge, prior to January 1, | | | | secure, fixed rate mortgages, especially the hard hit |
| 2010, of indebtedness incurred to acquire a principal | | | | homeowners in California where housing prices |
| residence. | | | | exceed $500,000. |
| The Act limits to $2 million the excludable amount of | | | | |