In Part I, we explored what debt the Mortgage Forgiveness Relief Act entails, how much money can be deducted and what to do if that cancelled debt exceeds the forgiven debt limitations. Here we will explore how to find out how much of your debt was forgiven and most importantly, how to report that forgiven debt on your taxes this year.
For those of you who are looking to buy your first home, may recently have purchased one or are looking to refinance and want to learn the process, this act is important to understand to save you the most money. Now that we know the basics of this act, let’s learn how to apply it our specific financial situation.
Can I claim a loss on my tax return if I lost money on the foreclosure of my home?
About.com reports that any loss from the sale or foreclosure of a home is not deductible. While a foreclosed home may not apply, now it’s time to discover if selling your home at a loss also qualifies for this provision.
I sold my home at a loss and my lender forgave the remaining loan. Does this situation qualify as cancellation of debt?
Yes. If the amount cancelled or cancelled totals more than $600, the lender must issue you a 1099-C, Cancellation of Debt form. While this debt remains forgiven, let’s explore what type of income should be reported on a tax return.
If my forgiven debt is excluded from my income, do I still have to report it on my tax return?
According to the IRS. yes you
do. The amount of debt forgiven must be reported on IRS Tax Form 982 and attached to your tax return. Find out how much of our debt was cancelled or forgiven allows you to prepare properly for our taxes.
How do I know how much of my debt was forgiven?
The lender that cancelled some of your debt should send you a Form 1099-C. The amount of debt forgiven or cancelled will be shown in box 2 on that form. Now that you understand how to find how much of our debt was forgiven, you have to learn how to fill out our taxes accordingly.
Do I have to fill out the entire Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness?
If you are only using this form to report this exclusion then just complete lines 1e and 2. However if you kept ownership of your home and the change of terms on your mortgage were the reason for this debt forgiveness, complete lines 1 e, 2 and 10b. While learning how to fill out our taxes properly remains important, knowing where to find these forms is equally important.
Where can I get this tax form?
If you don’t have it in your tax preparation software, you can find Form 982 at IRS.gov or by calling 1-800-829-3676. Allow 7-10 days for delivery.
Ultimately, with the help of the Mortgage Forgiveness Relief Act, homeowners can enjoy an income tax reduction as a result of cancelled or forgiven debt. Understanding this provision allows individuals and married couples to apply this provision to this year’s tax return.