Forgiven mortgage debt not taxable

Question: If I "short sell" my home, is the forgiven debt income to me?

- Roy Sancious

Phoenix


Answer: According to Consumer Reports, a 2007 tax law will help you dodge this tax bullet. In a short sale, the lender agrees to accept an amount for the home that's less than what you owe.

In years past, the amount of debt the lender forgave would have been reported as taxable income to the seller. Under the Mortgage Forgiveness Debt Relief Act, qualified home debt forgiven in years 2007-12 won't be taxed. The debt must have been incurred to buy, build or improve your principal residence.

If you receive a 1099 from the lender for the forgiven debt, tax lawyers I spoke with say you should add that amount to the sale price when filing your federal income-tax return. Don't add it to income.

by Dave Cherry Ask Dave Mar. 28, 2011 12:00 AM




Forgiven mortgage debt not taxable