New Tax Breaks Deliver Foreclosure Relief to Troubled Homeowners

By A. Toby Ellison, Cherry, Bekaert & Holland, L.L.P. (CB&H)
Email: tellison@cbh.com

On December 20, 2007, President Bush signed into law the Mortgage Forgiveness Debt Relief Act of 2007 (the Act) granting taxpayers a three-year exclusion of mortgage debt forgiveness from taxable income.

The Act excludes from taxable income for a three-year period from January 1, 2007 to December 31, 2009 mortgage loan discharges of up to $2 million secured by the taxpayer’s principal residence and incurred in the acquisition, construction or substantial improvement of the taxpayer’s principal residence. Prior to this legislation, any amount of mortgage debt cancelled or forgiven by a lender was included in the borrower’s taxable income.

In addition to foreclosure debt, the Act also excludes from taxable income debt forgiveness resulting from mortgage workouts and renegotiations related to the tax payer’s principal residence, in which the mortgage terms are changed to reduce a homeowner’s monthly payment, as well as some refinancing of mortgage debt.

Moreover, the Act includes additional real estate-related tax benefits, including a three-year extension of the mortgage insurance premium deduction and an expansion of the time period during which a surviving spouse is allowed to use the higher joint-filer home sale exclusion.

The Act also contains a few other tax law changes, including a clarification of the low-income housing credit as it applies to student housing and a clarification of the definition of cooperative housing corporations.

Contact the tax specialists at Cherry, Bekaert & Holland today to learn more about what you or your business can do to take full advantage of these provisions to maximize your tax savings for 2007 as well as future years.

Toby is a Senior Manager with CB&H and a member of the CB&H Real Estate & Construction Industry Group.