No, thankfully the Mortgage Forgiveness Debt Relief Act survived the fiscal cliff when it was given a one year extension through 2013. Homeowners who sell their primary residence in a short sale or lose their home to foreclosure will not have to pay taxes on the loss up to $2 million ($1 million if married filing separately)
Here's an excellent article: http://www.forbes.com/sites/financialfinesse/2013/01/10/extension-of-mortgage-debt-relief-and-debt-cancellation-options-if-your-mortgage-is-still-underwater/
Since we did not go into foreclosure or short sale, but did the government modification, do we still qualify?
And here's the IRS guidance ... just know that the dates from the IRS page reference the law as it was written: http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation- but, was, again, extended through 2013 ... AS long as the forgiveness (whatever form it takes, short sale, settlement, etc.) is on your primary residence
Sorry, yes as you see above, what this turns on is (1) Primary residence and (2) forgiveness of debt
See this from IRS:
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
Will they still send the IRS a 1099-c?
yes, you'll use Form 982 along with the return to document
Here's an excellent article on that piece of things: http://taxes.about.com/od/income/ss/mortgage_cancel_7.htm
So, I'm assuming that as long as we do this before the end of the year, we will not have to pay any tax. Correct?
That's correct, extension was through 2013
you'll file the 982 with your 2013 taxes due by Apr 2014
ok, I think that answers my questions. Thank you so much. You have been very helpful.
If this HAS helped, Id appreciate a rating of 3(ok) or better... that's the only way I'll be paid here ... HOWEVER, if you need more on this, come back here, so you won't be charged for another question ... Also, after you rate, the links to the forms and articles will be here as long as you need them