Since 2007, homeowners who were given mortgage debt cancellations by lenders, have been free of liability for that amount during tax season. However, the Mortgage Forgiveness Debt Relief Act is set to expire later this year and could have some serious consequences for already struggling homeowners.
Loss Not Income
When debts are cancelled, the IRS views this transaction as a source of income for the taxpayer; one that is required to be reported. When a transaction of this nature takes place, claiming it as income on one’s taxes boosts tax liability. The trouble is that anyone receiving a cancellation of debt is likely to already be experiencing financial trouble and could end up in tax debt over the transaction.
Up until the end of this year, the Mortgage Forgiveness Debt Relief Act is allowing already distressed, and at risk of foreclosure, homeowners find peace from their debts without further consequence. The issue of renewing the act is becoming a more pressing matter and many families are continuing to suffer at the hands of mortgage debt and would greatly benefit from the continuance of the program.