DESKTOP VIEW

Categories

Special Tax Exclusion for Cancelled Home Mortgage Debt

If a lender cancels or forgives money you owe, you usually have to pay tax on that amount. But when it comes to your home, an important exception to this rule may apply in 2013. Here are several key facts from the IRS about the special exclusion for cancelled home mortgage debt:

• If the cancelled debt was a mortgage loan on your main home, you may be able to exclude the cancelled amount from your income. To qualify you must have used the loan to buy, build or substantially improve your main home. The loan must also be secured by your main home.

• If your lender cancelled part of your mortgage through a loan modification, or ‘workout,’ you may be able to exclude that amount from your income. You may also be able to exclude debt discharged as part of the Home Affordable Modification Program. Visit IRS.gov for more details aboutHAMP. The exclusion may also apply to the amount of debt cancelled in a foreclosure.

• The exclusion may apply to amounts cancelled on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or greatly improve your main home. Proceeds used for other purposes don’t qualify. For example, a loan that you used to pay your credit card debt doesn’t qualify.

• Other types of cancelled debt do not qualify for this special exclusion. This includes debt cancelled on second homes, rental and business property, credit card debt or car loans.

• If your lender reduced or cancelled at least $600 of your mortgage debt, you should receive Form 1099-C, Cancellation of Debt, in January of the following year. This form shows the amount of cancelled debt and other information. Notify your lender if any information on the form is wrong.

• Report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. File the completed form with your federal tax return.

• Use IRS e-file to file your tax return. E-file is the easiest way to file because the software will do the hard work for you. You can use IRS Free File to prepare and e-file your tax return with either free, brand-name software or online fillable forms – all for free. Otherwise, you may file electronically with commercial software, or through a paid preparer.

• Whether you use IRS e-File or mail a paper return, you can use theInteractive Tax Assistant on IRS.gov to find out if you must pay tax on cancelled mortgage debt.

For more on this topic, see Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. You can get IRS forms and publications online at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:

Back to Top


Thank you for subscribing to IRS Tax Tips, an IRS e-mail service. For more information on federal taxes please visit IRS.gov.

Categories

  • Protax Consulting Services Seven Penn Plaza, Suite 416
    New York, NY 10001
    Tel 212.714.9070
    Fax 212.714.6654
    protax@protaxconsulting.com

    Member and Featured Faculty of:

    American Institute of Certified Public Accountants

    New York State Society of Certified Public Accountants

    NYSSCPA’s 100%
    Membership Program

    Association of International Tax Consultants, U.S. Member

    CCH Wolters Kluwer Faculty

    Lawline Faculty

    Furthered Faculty

    Strafford Faculty

    Clear Law Institute Faculty

    Clear Law Institute Faculty

    Contact Us for U.S.
    International Individual Tax

    wherever you are, .
    wherever you go
    - Download our FREE apps -


    Download the Protax App on the App Store

    Download the Protax App on Google Play

    Member and Featured Faculty of:

    • American Institute of Certified Public Accountants
    • NYSSCPA’s 100% Membership Program
    • Association of International Tax Consultants, U.S. Member
    • Faculty
    • Faculty