Northern California Mortgage Mods » tax on modified amount? http://norcalmortgagemods.com Surviving the mortgage mess Thu, 19 Apr 2012 18:03:06 +0000 en hourly 1 http://wordpress.org/?v=3.3.2 If My Mortgage Is Modified Will I Have To Pay Tax On The “Forgiven” Amount? http://norcalmortgagemods.com/2009/04/26/if-my-mortgage-is-modified-will-i-have-to-pay-tax-on-the-%e2%80%9cforgiven%e2%80%9d-amount/ http://norcalmortgagemods.com/2009/04/26/if-my-mortgage-is-modified-will-i-have-to-pay-tax-on-the-%e2%80%9cforgiven%e2%80%9d-amount/#comments Sun, 26 Apr 2009 20:56:21 +0000 Doug Jacobs http://norcalmortgagemods.com/?p=202 Generally, the IRS will assess a tax on debt you owed that was “forgiven.” This includes mortgage payments that have been modified or have been eliminated by short sale or foreclosure.

But in 2007, Congress passed the “Mortgage Forgiveness Debt Relief Act of 2007.”  That law says that should all or part of your first mortgage go away, you won’t have to pay tax on the amount that is gone.  This is the case for loans eliminated or reduced through foreclosure, short sale or modification.

There are limits on the regulation, however: it only applies to loans used to buy, build or improve a principal residence and only if the home is worth less than $1,000,000 (twice that for a couple filing jointly).

Additionally, the act was set to expire this year but has been extended through 2012.

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