Mortgage Forgiveness Debt Relief Act

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Prior to the Debt Relief Act of 2007 home mortgage debt forgiveness would result in taxable income to the homeowner. Under the 2007 act you may be able to exclude $2 million ($1 million married filling separate) if your principal residence mortgage debt is entirely or partially forgiven for tax years 2007, 2008 or 2009.

Taxpayers who qualify for the tax relief need to complete form 982 "Reduction of Tax Attributes Due to Discharge of Indebtedness" and attach it to their federal income tax return. Any debt forgiven should be reported by the lender to the taxpayer on form 1099-C. Note, not all debt reported on form 1099-C qualify for this exclusion.

In order to qualify for the relief, the debt must be secured by the principal residence of the taxpayer and must have been used to buy, build or substantially improve the residence.

For additional information see form 982 and IRS Publication 4681 "Canceled Debts, Foreclosures, Repossessions and Abandonments."

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William B. Riccio, CPA/CITP is a certified public accountant. He is president of Riccio & Associates and can be reached at (216) 255-6913 or by e-mail at william@ohiocpa.net.