|
Updated with FAQs at bottom — Feb. 28, 2008
IR-2008-17, Feb. 12, 2008
WASHINGTON — Homeowners whose mortgage debt was partly or
entirely forgiven during 2007 may be able to claim special tax
relief by filling out newly-revised Form 982 and attaching it to
their 2007 federal income tax return, according to the Internal
Revenue Service.
Normally, debt forgiveness results in taxable income. But
under the Mortgage Forgiveness Debt Relief Act of 2007, enacted
Dec. 20, taxpayers may exclude debt forgiven on their principal
residence if the balance of their loan was less than $2 million.
The limit is $1 million for a married person filing a separate
return. Details are on Form 982 and its instructions, available
now on this Web site.
“The new law contains important provisions for struggling
homeowners,” said Acting IRS Commissioner Linda Stiff. “We urge
people with mortgage problems to take full advantage of the
valuable tax relief available.”
The late-December enactment means that reporting procedures
for this law change were not incorporated into tax-preparation
software or IRS forms. For that reason, people using tax
software should check with their provider for updates that
include the revised Form 982. Similarly, the IRS is now updating
its systems and expects to begin accepting electronically-filed
returns that include Form 982 by March 3. The paper Form 982 is
now being accepted, but the IRS reminds affected taxpayers to
consider filing electronically, which greatly reduces errors and
speeds refunds.
The new law applies to debt forgiven in 2007, 2008 or 2009.
Debt reduced through mortgage restructuring, as well as mortgage
debt forgiven in connection with a foreclosure, may qualify for
this relief. In most cases, eligible homeowners only need to
fill out a few lines on Form 982 (specifically, lines 1e, 2 and
10b).
The debt must have been used to buy, build or substantially
improve the taxpayer's principal residence and must have been
secured by that residence. Debt used to refinance qualifying
debt is also eligible for the exclusion, but only up to the
amount of the old mortgage principal, just before the
refinancing.
Debt forgiven on second homes, rental property, business
property, credit cards or car loans does not qualify for the new
tax-relief provision. In some cases, however, other kinds of tax
relief, based on insolvency, for example, may be available. See
Form 982 for details.
Borrowers whose debt is reduced or eliminated receive a
year-end statement (Form 1099-C) from their lender. For debt
cancelled in 2007, the lender was required to provide this form
to the borrower by Jan. 31, 2008. By law, this form must show
the amount of debt forgiven and the fair market value of any
property given up through foreclosure.
The IRS urges borrowers to check the Form 1099-C carefully.
Notify the lender immediately if any of the information shown is
incorrect. Borrowers should pay particular attention to the
amount of debt forgiven (Box 2) and the value listed for their
home ( Box 7).
Related Items:
Subscribe to IRS Newswire
|