Real Financial Solutions

The Mortgage Forgiveness Debt Relief Act of 2007 signed into law by President George W. Bush on December 20, 2007 is landmark legislation that assists homeowners who have debt forgiven by a mortgage lender.  It assists homeowners by alleviating the tax consequences of debt forgiveness by a lender on principal residences provided the reason for the debt forgiveness is due to a decline in home values or a change in the homeowner’s financial situation.

The highlights of the new law are below:

1. Amends the Internal Revenue Code to exclude forgiven debt from gross income of indebtedness that was incurred to acquire a principal residence.
2. Extends the tax deduction for mortgage insurance premiums through 2010.
3. Allows members of a qualified volunteer emergency response organization an exclusion from gross income for state and local tax benefits.
4. Allows full-time students who are single parents and their children to live in housing units eligible for the low-income housing tax credit.
5. Allows a surviving spouse to exclude up to $500,000 of the gain from the sale of a principal residence owned jointly with a deceased spouse as long as the sale occurs within two years of the death of the spouse.

If you are involved in any activity that would include debt forgiveness, make certain that you contact a tax specialist to find out how this new law may affect you.