Mortgage Debt Forgiveness Survives Fiscal Cliff Settlement

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In a last minute – okay, more like a “well after the last minute” deal struck by the US Congress, a key provision protecting borrowers losing their homes was extended for one more year. The Mortgage Forgiveness Debt Relief Act of 2007, which technically expired on December 31, 2012 was extended to December 31, 2013 as a part of the legislation approved yesterday to pull us back from the “Fiscal Cliff.” For those not familiar with the Act, under normal circumstance is a debt owed is forgiven by the lender, it results in a taxable event for the borrower. By way of example, if I borrow $1,000 from a lender, and I don’t pay it back AND the lender agrees to forgive that debt, I am deemed to have “forgiveness of indebtedness income” which is generally subject to being taxed. However, as will all things “tax,” there are loopholes.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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