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IRS Tax Tip 2013-31: Important Facts about Mortgage Debt Forgiveness
If your lender cancelled or forgave your mortgage debt, you generally have to pay tax on that amount. But there are exceptions to this rule for some homeowners who had mortgage debt forgiven in 2012.
Here are 10 key facts from the IRS about mortgage debt forgiveness:
1. Cancelled debt normally results in taxable income. However, you may be able to exclude the cancelled debt from your income if the debt was a mortgage on your main home.
2. To qualify, you must have used the debt to buy, build or substantially improve your principal residence. The residence must also secure the mortgage.
3. The maximum qualified debt that you can exclude under this exception is $2 million. The limit is $1 million for a married person who files a separate tax return.
4. You may be able to exclude from income the amount of mortgage debt reduced through mortgage restructuring. You may also be able to exclude mortgage debt cancelled in a foreclosure.
5. You may also qualify for the exclusion on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home. The exclusion is limited to the amount of the old mortgage principal just before the refinancing.
6. Proceeds of refinanced mortgage debt used for other purposes do not qualify for the exclusion. For example, debt used to pay off credit card debt does not qualify.
7. If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Submit the completed form with your federal income tax return.
8. Other types of cancelled debt do not qualify for this special exclusion. This includes debt cancelled on second homes, rental and business property, credit cards or car loans. In some cases, other tax relief provisions may apply, such as debts discharged in certain bankruptcy proceedings. Form 982 provides more details about these provisions.
9. If your lender reduced or cancelled at least $600 of your mortgage debt, they normally send you a statement in January of the next year. Form 1099-C, Cancellation of Debt, shows the amount of cancelled debt and the fair market value of any foreclosed property.
10. Check your Form 1099-C for the cancelled debt amount shown in Box 2, and the value of your home shown in Box 7. Notify the lender immediately of any incorrect information so they can correct the form.
Use the Interactive Tax Assistant tool on IRS.gov to check if your cancelled debt is taxable. Also, see Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. IRS forms and publications are available online at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:
Interactive Tax Assistant tool
Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments
Mortgage Forgiveness Debt Relief Act and Debt Cancellation
Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness
IRS YouTube Videos:
Mortgage Debt Forgiveness – English | Spanish | ASL
IRS Tax Tip 2013-30: IRS: Four Ways to Get Free Tax Help
IRS: Four Ways to Get Free Tax Help
Many of us need information when preparing our federal income tax returns, like which form to use or how to claim a credit. The IRS offers free information and services to help taxpayers online, by phone and in person. Here are four ways to get the help you need.
1. On the Web. The IRS.gov website is your one-stop federal tax shop. Start here to find tips and information at “1040 Central.” You’ll find information about filing options, the latest news, special topics like identity theft, frequently asked questions and tax forms. You’ll also find a sample of online tools like the Interactive Tax Assistant and Where’s My Refund?
2. On the Phone. You can get free personal tax help by calling 800-829-1040. To order free tax forms and publications call 800-TAX FORM (829-3676). Check the status of your refund 24/7 by calling 800-829-4477. Call the same number to hear taped messages on more than 150 tax topics. These phone services are available Monday through Friday, 7:00 a.m. to 7:00 p.m. local time. Hours of service in Alaska and Hawaii follow Pacific Time.
3. In Your Community. The Volunteer Income Tax Assistance program helps people who make $51,000 or less prepare and file their tax returns. The Tax Counseling for the Elderly program is a similar service for seniors. Both are free and offered in many local areas. Between January and April visit IRS.gov or call 800-906-9887 for a list of VITA sites near you. To find a TCE or AARP Tax-Aide site during this same period, go to AARP.org or call 888-227-7669 (888-AARPNOW).
4. In IRS Offices. IRS Taxpayer Assistance Centers are located in many major cities. IRS employees offer personal assistance with a variety of tax issues. Before you visit, check the IRS website for a list of office locations, and the location-specific business hours and services offered. Visit IRS.gov, click on the “Help & Resources” tab and then click “Contact Your Local IRS Office.”
Publication 910, IRS Guide to Free Tax Services, offers more information about free tax help. It is available at IRS.gov or by calling 800-TAX-FORM
(800-829-3676).
Additional IRS Resources:
1040 Central
Free Tax Return Preparation for You by Volunteers
Find a VITA Site Near You
Contact Your Local IRS Office
Publication 910, IRS Guide to Free Tax Services
IRS YouTube Videos:
Free Help Preparing Your Tax Return – English | ASL
Do-It-Yourself Free Tax Preparation – English | ASL
IRS Podcasts:
Free Help Preparing Your Tax Return – English
Do-It-Yourself Free Tax Preparation – English
Stacie's Tax Stuff 