What is the Mortgage Forgiveness Debt Relief Act of 2007?
In 2007, Congress passed the Mortgage Forgiveness Debt Relief Act to offer relief to homeowners who would formerly owe taxes on forgiven mortgage debt after facing foreclosure. The law states that homeowners are exempt from income tax resulting from the release of mortgage liability so long as the proceeds were used to buy or improve their primary residence. The act provided relief for three years through 2009, but was extended an additional three years, covering debts discharged through end of 2012.
The act does not offer an income tax shelter for mortgage debt cancellation for owners of investment properties or vacation homes. It is best to speak with a tax advisor or attorney to see if you qualify for income tax protection from the new law.
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