Legal Tips about Mortgage Debt Cancellation

Tuesday, August 25, 2015

A mortgage or mortgage loan is used if you purchase real estate to secure the borrower’s property.  Mortgages is a legal way to require owners of the real property to pay off the loan.  Mortgage borrowers can be individuals or businesses. 

We are the Strategic Tax Lawyers, and we are Beverly Hills tax lawyers who specialize in tax relief and the IRS tax code. As tax lawyers in Beverly Hills, we have clients who have multiple real estate assets, so we are providing some legal tax tips about mortgage debt. 

The IRS does have a Mortgage Forgiveness Debt Relief Act and Debt Cancellation to allow taxpayers to exclude income from the cancellation of the debt from their taxable income.  If you have a mortgage loan, you will need to pay all the taxes on the amount of the loan. There is a legal exclusion for homeowners if their mortgage debt was cancelled. If the exclusion applies, then the amount of the debt that was cancelled would not be taxable. Also, if your mortgage loan debt for your primary residence was cancelled then you would not need to include that amount in your income. In this case, the loan should be used to buy, improve, or build onto the primary residence in order to qualify for that exclusion.  Please note that this exclusion will not be applied if the cancellation of the debt is not related directly to the declined value of the primary residence or the financial conditions of the taxpayer. 

You can do a loan modification to exclude the mortgage debt amount from your income. Or, you can exclude the canceled mortgage debt through the Home Affordable Modification Program. In the case of a foreclosure, the exclusion of the mortgage debt cancellation would also apply. If you refinance your mortgage the mortgage debt exclusion will apply if any proceeds are used to buy, improve build upon the primary residence. Use IRS Form 1099-C if your debt was reduced or cancelled by a minimum of $600. 

If you have other types of cancelled debt. Which include rental or vacation homes, business property, car loans, or any credit card debt, then it would not qualify for this special exclusion. You can always visit the IRS website for free and interactive tax tools about taxable mortgage debt.

Are you looking for a Beverly Hills tax lawyers? The Strategic Tax Lawyers, LLP are a firm of tax lawyers in Beverly Hills that are experts in tax code with years of experience dealing with the IRS and tax-related matters.   Call the Strategic Tax Lawyers at (800) 669-4775 for a free consultation to assist you with your tax-related matters.