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5 Things You Need to Know About the Mortgage Forgiveness Debt Relief Act

5 Things You Need to Know About the Mortgage Forgiveness Debt Relief Act

Americans struggling with substantial mortgage debt that exceeds the value of their home have several options, including a short sale, foreclosure, or mortgage restructuring. Traditionally, any of these options that results in forgiving or discharging some of the debt on their primary home results in a form 1099-C, Cancellation of Debt, from the lender.

The IRS considers most forms of cancelled debts, including mortgage debt, as income for the recipient. This can mean a tax bill of thousands of dollars, even if you lost the home in foreclosure.

The Mortgage Forgiveness Debt Relief Act of 2007 was passed at the height of the foreclosure crisis, gives homeowners tax relief from this forgiven debt. Here’s what you need to know about the Mortgage Forgiveness Debt Act.