Mortgage Forgiveness Debt Relief Act of 2007.

This past December President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007. The bill was created to help protect homeowners who are struggling with rising mortgage payments. The legislation only affects borrowers who close a loan on or after January 1, 2007. The law is essentially creating a three-year window of opportunity for homeowners to refinance their home and not have to worry about paying taxes on any debt forgiveness they receive.

Previously, the debt forgiven by a lender following foreclosures and mortgage renegotiations was considered income for tax purposes. For example your principal residence is subject to a $230,000 mortgage debt. Your lender forecloses in 2008 and the residence is sold for $180,000 a difference of $50,000. Before the new law was passed, the $50,000 would be included in your gross income. For these homeowners they were not only losing their homes but at the same time found themselves left with a large tax bill. Under the new law the mortgage debt forgiven is excluded up to $2 million.

Also the Mortgage Forgiveness Debt Relief Act extended mortgage insurance premiums deductions to 2010. The law provides that premium payments will qualify for this deduction whenever they are paid as long as the contract is entered into after 2006. The full deduction is only available to those whose adjusted gross income is less than $100,000 (married filing jointly), or $50,000 (married filing separately or single). A partial deduction is available to those whose adjusted gross income is $109,000 or $54,500.

Another big tax break the new Act brings involves the sale of a home by a surviving spouse. A surviving spouse is entitled to the $500,000 gain exclusion as long as the sale takes place no later than two years after the date of death of the individual’s spouse. Previously the sale was required to take place for the tax year in which the spouse died.

For more information call Geoff at: CALL 1(800)462-8297