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In 2010 we did a home modification loan on our first loan and…

In 2010 we did a...
In 2010 we did a home modification loan on our first loan and the second loan on the home was discharged. Both loans were for 100% of the purchase price. The second loan was picked up by another lender who is trying to collect on the second, but we are thinking of making a cash offer to settle. If we do come to a settlement, are we going to be held accountable for taxes on the forgiven amount of the loan? Any information would be helpful. Thank you.

Marcia Hovde
Sun lakes, AZ
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Answered in 2 minutes by:
8/29/2013
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,009
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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NPVAdvisor :

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)

Customer:

Since we did not go into foreclosure or short sale, but did the government modification, do we still qualify?

NPVAdvisor :

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

NPVAdvisor :

Sorry, yes as you see above, what this turns on is (1) Primary residence and (2) forgiveness of debt

NPVAdvisor :

See this from IRS:

NPVAdvisor :

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.

Customer:

Will they still send the IRS a 1099-c?

NPVAdvisor :

yes, you'll use Form 982 along with the return to document

NPVAdvisor :

Here's an excellent article on that piece of things: http://taxes.about.com/od/income/ss/mortgage_cancel_7.htm

Customer:

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?

NPVAdvisor :

That's correct, extension was through 2013

NPVAdvisor :

you'll file the 982 with your 2013 taxes due by Apr 2014

Customer:

ok, I think that answers my questions. Thank you so much. You have been very helpful.

NPVAdvisor :

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

NPVAdvisor :

thanks

NPVAdvisor :

Lane

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,009
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Lane and 87 other Tax Specialists are ready to help you
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Thanks Marcia,

let me know if you need more here.

Positive feedback appreciated

Lane
Ask Your Own Tax Question
Thanks so much
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Lane
Lane
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Category: Tax
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