I NEED TO KNOW, WHAT LAW?? George W. Bush just signed a law that is going to prevent the IRS from charging you income tax on the money you supposedly made by paying the lenders back a lesser amount than you owed.

He JUST signed it? Really!

Impressive

Hello C:

Even though your knowledge of current events is lacking, your question is valid - or WAS valid when he was president. Let me clarify.

Depending on what kind of debt we're talking about, there may be a taxable issue for the borrower. Using a short sale as an example, in the past, the bank would issue a 1099-A for the amount of the bank's loss to the borrower and he would have to pay income tax on that amount.

However, the government has passed a law that excludes certain borrowers from this tax. The Mortgage Forgiveness Debt Relief Act of 2007 says that for foreclosures, short sales and mortgage restructurings for less than the current balance on the mortgage, there will be no tax on the forgiven debt, if...

* The debt relief was incurred between 2007 and 2009
* The debt was for purchase and improvement of the house
* The debt was secured by the borrower's primary residence
* The amount forgiven was no more than $2 Million for a married couple

I don't know whether the law has been extended. I think not.

excon

In fact there is a fairly recent change adopted in 2007 called the "Mortgage Forgiveness Debt Relief Act" which allows you to not have to pay income tax on mortgage debt foregiveness on your principal residence. See: http://www.irs.gov/individuals/article/0,,id=179414,00.html

Hello C:
I don't know whether the law has been extended. I think not.

excon

Hello excon - I guess I was typing my post at the same time as you were doing yours! Actually, according to the IRS web site that I listed, the act applies to mortgage forgiveness for calendar years 2007 through 2012.

Hello excon - I guess I was typing my post at the same time as you were doing yours! Actually, according to the IRS web site that I listed, the act applies to mortgage forgiveness for calendar years 2007 through 2012.Hello again, e:

Had to spread it... Yup. Great minds think alike - and at the same time too... I figured they extended it, but had no reference. Good on you for finding one.

excon