Mortgage Debt Forgiveness Act & IRS Debt Cancellation
One of the unfortunate results of the current home crisis is the reported taxpayer gains that can occur as the result of the foreclosure of a home. When the bank or lending institution forecloses on a home or approves of a short sale, the taxpayer is issued a 1099 for the amount remaining on the mortgage. The IRS views that amount as a taxable net gain. However, some homeowner are able to eliminate the net gain under the recent Mortgage Debt Forgiveness Act.
Because our CPAs know and understand the laws and regulations for recourse and nonrecourse loan structures, we have helped many clients remove liability for the gain that results from the short sale or foreclosure of a primary residence or from a bankruptcy filing. Specifically, the Mortgage Debt Forgiveness Act, provides certain taxpayers an exemption for income related to mortage restructuring and mortgage debt forgiveness.