Posted on | March 2, 2010
The Mortgage Debt Relief Act of 2007 allows taxpayers to exclude from income the amount of debt forgiven related to their principle residence. If the debt was reduced through mortgage restructuring or the debt was forgiven connected to a foreclosure, then it qualifies under the Act and the taxpayer does not need to report it as income. The exclusion only applies if the debt was incurred to buy, build or substantially improve a principal residence. Further, the debt must be secured by the home. If the debt is forgiven, it must be reported on Form 982 and attached to the taxpayer’s tax return. The act only applies to debts forgiven anytime in 2007 through 2012. The maximum a taxpayer can exclude is $2 million, or $1 million (if married filing separately).
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