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September 19th, 2009:

The Mortgage Forgiveness Debt Relief Act of 2007

President Bush signed into effect on December 20th of 2007 the Mortgage Forgiveness Act of 2007. The debt forgiveness act through mortgages applies to transactions taken place in 2007, 2008 and 2009. Finding out further information is what a person must have to make an informed decision and to see if the act applies and works for the individual. There is specific information that can be attain through the Internet at, by calling the IRS at 1-800-829-1040 or by visiting a local IRS office. Many people confuse the act with general debt relief, but this is incorrect since this act deals primarily with mortgages.The Mortgage Forgiveness Debt Relief Act provides assistance to struggling homeowners by not taxing the debts forgiven or cancelled through either buying, building or substantially improving the principal residence or used to refinance the debt incurred for those reasons. It does not give a tax break on a second residence, debt from credit cards, car loans or anything other than the debts incurred from the primary residence or on principal balances over two million dollars.A form is is required to be filled out and filed along with the proper year’s federal tax filing. This information must be filled out properly on a Form 982 for reporting the debt forgiveness. The lender forgiving or cancelling the debts need to provide another form, the Form 1099-C or Form 1099-A to show the exact amount of debt that was forgiven or cancelled.Rather than face foreclosure the Mortgage Forgiveness Debt Relief Act may be able to a person out. Normally when a forgiveness of debt occurs it is viewed as an income gained, reported on taxes as such and therefore taxed by the government, even though in the case of debt forgiveness there was no actual money to tax. The government realizing the increasing number of foreclosures tried to decrease the number of foreclosures through allowing resolved or cancelled debts to not be taxed, truly making the debts forgiven and nothing to be paid back.If a mortgage refinance was done, the cash-out option to the refinance will depend on whether a person can qualify for the Mortgage Forgiveness Debt Relief Act. Checking with a professional will help to decide if one qualifies or not. With the recent mortgage crisis and declining values in homes and poor resale of homes, more and more homeowners are in desperation for some kind of help from the government.While this may help an individual, there are other methods to prevent a person from foreclosure on their home and marring their credit score for a long time to come. Debt counselors are many times able to provide areas of improvement in everyday life to gather wasted money spent. Another way is to take on sources of additional income, a second job or selling unused or unwanted items or perhaps adding a roommate to help pay with the source of many financial problems, especially today – the mortgage. This last option can actually make the home help pay for itself.

Student Loan Debt Consolidation and Other Ways of Dealing With Your College Debts

As a student, you must have piled up quite a number of loans in your pursuit of college education. This worries you to no end as the repayments have become staggering and the responsibility that you now face becomes overwhelming. Good thing you can find relief by merging these debts by way of student loan debt consolidation. This is probably one of the most effective ways in dealing with your debts.

First of all, you have to know the number of your loan, their loan types and the amounts. Then try having your list of prospective lending companies and agents and ask from them the best student loan debt consolidation programs that they can offer to you. Such programs, if you are able to get the right one for your loans, can be the most effective solution to your debt problems.

Those who do not want to get student loan debt consolidation for the debts, they can always try asking for their loans to be cancelled. Such cancellations can be granted, it all depends on the kind of debts that you obtain, the loan amount and the date you are able to avail such loans.  It might be possible that you are able to obtain loans under fraudulent circumstances. If this is the case, then you have the right to have your loan cancelled.

In some cases, the debtor might become sick or disabled, making him incapable of further facing his responsibility of paying up the rest of the loan. He can therefore apply for a loan cancellation. One of the qualified individuals in having their loans cancelled is someone who belongs to the military and other specific groups. Loan cancellation can do well for you if approved. You are able to place yourself in a zero debt situation and be able to have a restored credit.

If student loan debt consolidation and loan cancellation do not appeal to you, there is another way of dealing with your numerous debts. You can ask for a postponement of payments of your monthly installments. This is also known as loan deferment. If you used to be a good payer of your monthly loans, but got derailed because of difficult times, then it is likely that you qualify for this type of debt solution.

Being a student borrower, you are actually afforded many options and ways on which to effectively deal with your debts. Whether it be student loan debt consolidation, cancellation or deferment – one of these best suits your needs. And so it is really up to you to discern and decide which among them you will want to employ.

For more information about student loan consolidation, college loans and private student debts, do visit our Fuss About Loans blog.

Writer, Abstractor and Blogger.
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The American Foreclosure Crisis and Forgiven Debt—relief at Last!


I’ve had a lot of clients worried about the foreclosure crisis lately. Clients who lost their homes are terrified of the tax repercussions of their once-expensive home selling for a pittance; then the mortgage lender turning around and issuing them a IRS Form 1099 for the forgiven debt. Imagine the horror– You’ve already lost your home to foreclosure— and now you have to pay thousands of dollars in taxes on the forgiven debt, too! The worst possible scenario!


Do not despair– all is not lost. Congress signed the Mortgage Forgiveness Debt Relief Act in 2007 to help the millions of homeowners who are dealing with this crisis. The Mortgage Forgiveness Debt Relief Act allows homeowners to exclude the forgiven debt from their foreclosed home, and saves already distressed homeowners from the additional blow of forgiven debt on their tax return.


Usually, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. The lender essentially has to “eat the cost” of the difference between what the homeowner owes on the property and what the bank eventually sells the distressed property for.


The Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude certain cancelled debt on your principal residence from income. The Act applies to cancelled debt used to buy, build or improve your principal residence. The Act applies to homeowners whose loan was less than $2 million. The Act does not apply to second homes, rental property, or other investment property. The Act applies to debt forgiven in 2007, 2008 or 2009.


The cancelled debt listed on your Form 1099 still must be reported on your tax return, even though it will not be taxable. The amount of debt forgiven must be reported on Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness). This Form 982 must be filled out and attached to your tax return.


Form 982 is used for other purposes in addition to reporting the exclusion of forgiveness of qualified principal residence indebtedness. If you are using the form only to report the forgiven debt on a  principal residence, you only need to complete lines 1e and 2. If you kept ownership of your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence indebtedness, complete lines 1e, 2, and 10b.


Your lender should send a Form 1099-C, Cancellation of Debt, by January 31, 2008. The amount of debt forgiven or cancelled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown in box 2 will generally be the amount that you enter on lines 2 and 10b, if applicable, on Form 982. 


And more good news– even if part of the forgiven debt doesn’t qualify for exclusion from income under this provision, is it possible that your forgiven debt will qualify under the IRS’ “insolvency” exclusion. If you believe you qualify for debt exclusion under the IRS’ “insolvency” exclusion, it is recommended that you see a tax professional to help you.


I hope this article has eased your fears about this crisis that so many Americans are facing this year. As long as you keep good records and fill out the proper forms for the IRS, you can breathe easy and know that your will not suffer an additional hardship from cancelled debt on your primary residence.


Christy Pinheiro, EA is an Enrolled Agent and holds a Bachelor’s degree from San Jose State University. She has over 15 years of business and accounting experience. She was a staff accountant for a private CPA firm and also for the State of California before going into private practice. Her finance and tax articles have been published in numerous periodicals. She is the author of Pineapple Guides’ EA Exam Review book series.
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