What qualifies for mortgage forgiveness debt relief?
The Mortgage Forgiveness Debt Relief Act of 2007 provides special relief to homeowners whose qualified mortgage debt was forgiven by lenders. Under the Act, the forgiven debt can be excluded from taxable federal income.
To qualify, the debt must be on your primary residence (not a second home, investment, or rental property) and forgiveness must have been granted between January 1, 2007 and December 31, 2016, both dates inclusive.
In addition, the mortgage must have been used to purchase, build, or substantially improve your home.
Refinanced mortgages qualify, but only up to the amount of the original mortgage principal before the refinance. Refinance proceeds that were used to buy a car, pay off credit cards, or other purposes don't qualify for relief (that is, they count as taxable income).
The maximum amount of debt forgiveness that can be excluded from taxation is $2 million ($1 million for married couples filing separately).
Not all states follow this law, which means that some taxpayers still have to pay state tax on forgiven mortgage debt. When you prepare your state return, we'll handle the forgiveness according to your state's tax law.