Debt Relief Act and Debt Cancellation FAQ's!
The mortgage forgiveness debt relief act, and consumer debt relief program were created to help people like us. Learn how to take advantage of the Mortgage Debt Relief Act of 2007.
With the difficult economy in this country, there are many people deep in financial trouble. In some cases, those debts may be forgiven or canceled, something that has occurred a lot with the mortgage debt relief programs now available.
When your debts are forgiven through a consumer debt relief program or other form of financial relief, in some cases there can be a tax on the amount that was canceled. Of course, this can become a big burden upon taxpayers who are already having difficulties financially, which is why the Mortgage Debt Relief Act of 2007 was introduced.
This act allows most taxpayers to avoid paying on - income - that occurs from the discharge or restructuring of debts. To qualify for this provision from the federal debt relief system, the debts must be forgiven in 2007-2012.
For married couples, you can take advantage of this Debt Act for up to two million dollars of debt that has been forgiven. More than likely you are wondering what this may mean to you financially.
Looking Into The Debt Relief Act? It Can Help You If You Qualify!
Here is a look at some of the frequently asked questions regarding this consumer debt relief program.
FAQ #1 - What exactly is the cancellation of debt?
Cancellation of debts occur when you borrow money from a lender and then at a later point that lender cancels the debts. In some cases, these canceled debts may need to be included as income on your income taxes.
For example, if you had a $15,000 loan and you defaulted on this loan after only paying $5,000, the cancellation of debt on that loan would be $10,000, which usually would be considered as taxable income.
FAQ #2 - When debts are canceled, is it always taxable?
Although you often have to claim canceled debts as income, it is not always taxable. In bankruptcy, insolvency, and non recourse loans, this does not have to be reported as income. Some farm debts may not be taxable either.
Also, with this new Relief Act, debt cancellation on a principle residence that qualifies for the program will not be taxed.
FAQ #3 - What did the Mortgage Forgiveness Debt Relief Act of 2007 do?
Basically this Act allows you to exclude income that is a result of foreclosure or loan modification on a principal residence. Debts that were reduced through the restructuring of your mortgage or even mortgage forgiveness can also quality for this mortgage debt relief as well.
FAQ #4 - Are all canceled debts covered by this act?
It is important to realize that this federal debt relief system is not going to cover all debts. Only debt that was used to improve, build, or purchase a principal residence or debt for refinancing this debt is going to qualify.
This type of debt is called qualified principal residence indebtedness. Other debts, such as credit card debts, will not qualify.
FAQ #5 - Do I still have to include this income on my tax returns?
Although you don't have to pay taxes on these debts because of the new consumer debt relief program, you do need to include this on your tax return. You will need to use Form 982 to report this type of income.
FAQ #6 - How will I find out how much debt was canceled?
When debts are forgiven, the lender is supposed to give you a Form 1099-C, which will show you the amount of debts that have been canceled.
This Relief Act can definitely benefit many consumers today. Make sure you learn all you can about this act and use it to help lower the amount you have to pay on your taxes.
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