Mortgage Forgiveness Debt Relief Act: The Mortgage Forgiveness Debt Relief Act of 2007
The sub prime mortgage crisis has become a vital issue in the economy today. More and more people are being persecuted by this crisis. Though sub prime mortgages actually constitute only 7% of all the loans in the country, it accounts for 43% of the loans that have been actually foreclosed in the third quarter. Many powerful banks and brokers invested in Structured Investment Vehicles (S.I.V.s), and in this situation of crisis, these investors are salvaging and lending a helping hand to these S.I.V.s, and similarly these brokers and banks are being helped by the foreign investors and the federal reserve.
This Mortgage forgiveness debt relief act had to be reported as taxable income to the borrower. With the passage of H.R.3648, the Mortgage Forgiveness Debt Relief Act, a taxpayer is no longer required to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence.
IRS sent a under reporter letter to all those people who did not address the foreclosure about their returns. As a result the forgiven debt caused accumulation of tax debts. But with the Mortgage Forgiveness Debt Relief Act of 2007; all that has changed. The congress actively seeks to bail out these unfortunate people affected by the crisis. Taxes on forgiven debts are waived for a period of 3 years under the new laws of mortgage forgiveness debt relief act, for example H.R. 3648 suspends tax on forgiven debts from foreclosures, (1/1/07 through 12/31/09). It has been calculated that this law might save the money of the people affected by foreclosures up to $600 million. However it is not applicable to those affected before the start of 2007. But the law includes within its ambit loan renegotiation plans and also maybe, partial reduction of debt.
But the important thing is that this Mortgage forgiveness debt relief act only applies to debt related to improvement or upgrading of homes and residences. It does not provide relief or exclude from taxation those who encashed their equity to make purchases or investments other than their homes. They might still be taxed if not exempted for reasons of bankruptcy under IRS Code Sec 108. If you have a qualified residence then a forgiven debt of up to $2 million is exempted from taxation.
With the recent increase of FHA loan limits from $362,790 to more than double to $729,750 many homeowners can refinance with much lower, more secure, fixed rate mortgages, especially the hard hit homeowners in California where housing prices exceed $500,000.
Learn more about Obama Mortgage Relief Plan Qualifications.
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