IRS Form 982 - Avoid Debt-Relief Taxes

Homeowners whose mortgage debt was partly or completely forgiven during 2007 may be capable to claim special tax relief by  filling out newly-revised Form 982 and connecting it to their federal income tax return, as per the Internal Revenue Service. Generally, debt forgiveness results in taxable  income.

Every home loan does not qualify for tax relief. To qualify for exemption, the debt must have been taken to build, buy, or improve  your residence or refinance mortgages originally incurred for that reason. For full exclusion, the loan amount must not be more than $2 million and $1 million for married filing individually or single taxpayers. Debt occurring due to mortgage refinancing can also be integrated. However, IRS tax relief can only be availed depending upon the old mortgage standard.

The new law moreover contains significant provisions for struggling homeowners and urges the people with mortgage problems to take full benefit of the valuable tax relief available. The late-December performance means that reporting process for this  law change was not included into tax-preparation software or IRS forms. For that reason, people using tax software should check with their provider for updates that include the revised Form 982. In the same way, the IRS is now updating its systems and anticipates starting accepting electronically-filed returns that include Form 982 by March 3. The paper Form 982 is now being  accepted, but the IRS reminds affected taxpayers to believe filing electronically, which deeply decreases errors and speeds refunds. In addition, a good tax attorney facilitates in  the filing procedure by offering the requisite IRS help.

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Borrowers whose debt is lessened or abolished receive a year-end statement (Form 1099-C) from their lender. For debt cancelled in 2007 and later, the lender was obligatory  to offer this form to the debtor by Jan. 31 of the next year after foreclosure. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.

The IRS mainly desires you to be practical. So whereas you won't owe tax on mortgage debt settlements concluded in 2007, 2008, or 2009, the income from such transactions isn't automatically disqualified from tax. If you don't complete IRS Form 982, then as far as the government is concerned you owe tax on whatever tax debt relief you get from your mortgage lender.