While lenders are working to write off debt, the IRS has introduced a tax relief that many will be able to apply to their own taxes. This exemption will not be around for long. The set expiration is at the end of 2012.
Qualifications
• The property must be the individual’s primary residence.
• Rental property, second homes or investment properties are exempt from this tax break.
• Loan modifications, short sales and any debt cancellations will not be considered as income.
• $2 million is the amount for forgiven debt for a married couple filing jointly
• $1 million will be the cut off forgiven debt for those who are filing as single.
• Loans that were used to buy, build or improve the home will qualify and money used for person reason such as purchasing a car or paying of credit card bills will disqualify an individual from the tax break.
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Forms Involved:
IRS Form 1099-C- “Cancellation of Debt”
• This form is completed by your lender and submitted to the IRS.
• This form includes information about the debt that has been written off such as the amount.
• Any debt that is less than $600 does not require this form and is not considered taxable income.
• If you lose money when your home is foreclosed on or you decided to proceed with a short sale, this will disqualify you for the credit. Unless you continue with the foreclosure process and your lender decides to write off some of the debt, then you will qualify for the tax break.
IRS Form 982
• Necessary to file for the debt-forgiveness exemption
• Form is available on the IRS website.
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