Homeowners who have had mortgage debt forgiven after a foreclosure, modification, or short sale may be able to exclude the canceled debt from their taxable income if they meet specific criteria.
According to Gil Charney, principal analyst at The Tax Institute at H&R Block, the specific criteria to have forgiven debt excluded are the debt must have been incurred to buy, build or substantially improve the residence, called “acquisition debt, and the property must be the taxpayer’s primary residence.
Also, the exclusion applies only to acquisition debt up to $2 million, or $1 million for married taxpayers filing separately, and cancelled mortgage debt not used to buy, build, or improve a principal residence is not eligible for the exclusion, but may be excludable under a different provision, such as bankruptcy or insolvency, Charney added.
Under the Mortgage Debt Relief Act of 2007, the provision is for debt forgiven between 2007 and 2012.
For those considering a short sale…
Other types of deductions
- Mortgage Interest Deduction – taxpayers are eligible to deduct qualified mortgage interest on their main home and a second home if they itemize deductions on Schedule A…
- Real Estate Taxes – homeowners are able to deduct real estate taxes separately from mortgage interest on Schedule A and from property taxes
- Nonbusiness Energy Property Credit (expired at the end of 2011) – taxpayers may claim energy-efficiency credits for up to 10 percent of the cost of various home energy-efficiency improvements
- Residential Energy Efficient Property Credit – a nonrefundable personal credit is available for property used to produce energy in a personal residence located in the U.S…
(Source: H&R Block)
Read the rest of this article from DSNews.com here: “Still Time to Have Forgiven Mortgage Debt Excluded as Taxable Income“.