What You Need To Know About Debt Forgiveness
If you have ever had your bank or other financial institution forgive your mortgage you still have to pay taxes on that amount. However, there are some homeowners that have an exception to this especially in recent years.
The following are a few tips issued by the IRS about mortgage and tax forgiveness:
Whenever a debt is cancelled the result is usually income that is taxable. However, one thing most homeowners don’t know is that you may not have to pay taxes on this debt if it was a mortgage on the home you currently live in all year round.
The money must be used for your main home in the form of renovations, additions or remodeling.
$2 million is the limit that can be used in most exceptions and $1 million for a married couple.
In some cases you may have the option of reducing the taxable amount and also the amount of the debt if it is part of a debt consolidation case.
Homeowners who have used some of the money to renovate or remodel their home can also check to see if they qualify for exclusions. Exclusions are monies before the principal is applied.
Proceeds received from any other source will not qualify homeowners for exclusions. For example if debt is obtained from credit cards it will not qualify for exclusions.
Form 982 is the form that homeowners should use if they qualify for exclusions and attached to their income tax forms.
No other debts will qualify homeowners for exclusions. Debts included are rental homes, debt for, credit cards, businesses or a car loan. There are other cases that can also qualify homeowners to use this form such as monies from bankruptcy cases.
If your bank or other financial institution cancelled or reduced your mortgage they will send you a form to be used when filing your income tax. The form is 1099-C and Box 2 should contain the amount that was cancelled or reduced.
These are just a few of the tips offered by the IRS for mortgage forgiveness. If you would like more information just visit the IRS website. Be sure to read all the information available on mortgage forgiveness, cancellation and reduced mortgages. You can also get any other forms you need for filing your income tax including exclusion forms at the IRS website. If you still have questions you can also contact your local tax specialist who can help you with filing your income tax and provide you with all the forms you need.
To see if you qualify for any exclusions you can contact your bank or other financial institution that carries your mortgage. They can also answer any questions you have about mortgage forgiveness as well as determine if you qualify for exclusions.
For additional information on exclusions and mortgage forgiveness you can also search online. Many financial websites have information on both and can also answer any questions you have about your home and your mortgage as well.