If you have defaulted on your mortgage, and you are accruing mortgage debt that you just cannot pay back, you may need to consider having your mortgage debt forgiven. To find out if you are eligible, and what exactly mortgage debt forgiveness entails, check out these 6 things to know about having your debt forgiven.
- In most cases, when your debt is forgiven, the amount that you owe(d) is considered taxable income, i.e. you have to pay income taxes on your mortgage debt. You can apply to be exempt from paying taxes on the debt through the Mortgage Forgiveness Debt Relief Act of 2007 (good between 2007 and 2012)
- The Mortgage Forgiveness Debt Relief Act applies to home improvement mortgages you take out to in order to significantly improve your home
- A married person filing a separate return is limited to $1 million in forgivable debt.
- Any subsequent mortgage that you take out after your first one, that is used for purposes other than home improvement, is not eligible for the income tax exclusion.
- Debt that is forgiven for non-primary residences (vacation home, second home, business property, etc.) does not qualify for this exclusion.
- The IRS now offers an Interactive Tax Assistant on its website that can help you determine whether or not your forgiven debt is taxable.
For more information on mortgage debt forgiveness, click here, or check out irs.gov