Forgiven debt may be free from income tax
Charlene M. Ives, CPA, PC
Mortgage interest
"When you're worried about making your payments, higher taxes are the last thing you need to worry about. So this bill will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive," President Bush said in his remarks upon signing the law.
The debt must have been discharged by the lender in 2007, 2008 or 2009.
The amount of debt that can be excluded is limited to $2 million. The exclusion can be used only if the loan was taken out to acquire, build or substantially improve a principal residence. orgiveness of debt on vacation homes, second homes and investment property doesn't qualify. Debt forgiven on a cash-out refinance or home equity loan must be apportioned between the amounts used for home acquisition, construction or improvement and amounts used for other purposes such as tuition, travel or repayment of other debts. .The information made available through this site is provided for informational purposes only and should not be construed as rendering financial, tax, accounting, legal, consulting, investment or other professional advice on any matter. Your use of the site does not create a client, advisory, fiduciary or professional services relationship between you and . Please see the sites Terms of Use for more information.